Manufacturing activity hots up

Published on Thursday 2 August 2007 00:17

BRITISH manufacturing activity accelerated to its fastest pace in three years in July, while factory gate inflation hit its highest level in at least 15 years, according to the latest figures, which analysts said could raise the prospect of a further rise in the cost of borrowing today by the Bank of England.

The Bank's monetary policy committee is largely expected to keep interest rates on hold at 5.75 per cent today, but evidence of a resurgent manufacturing sector and of stronger pricing power in the sector will bolster expectations of a further rise, to 6 per cent, sometime this year.

The Chartered Institute of Purchasing and Supply/NTC purchasing managers' index rose to 55.7 last month, from an upwardly revised 54.7 in June.

The July reading was the highest since July 2004. Economists had expected the index to fall to 54.

Output prices rose at the fastest rate since the index was created in 1992, jumping to 57.5 in July from 56.8 a month earlier. Input price inflation rose at its fastest rate since August 2006, at 66.9 in July from 65.7 in June.

Howard Archer, the Global Insight economist, said the Bank would be "alarmed" to see output prices spiking to a record. High input costs would put pressure on manufacturers to pass on price rises, he added.

Employment in the sector rose for a seventh successive month, with firms creating more jobs than at any time in the past three years.

• US manufacturing expansion slowed in July from the previous month as a decline in new orders made factory managers more cautious, according to figures released by the Institute for Supply Management, which said its index of national factory activity fell to 53.8 last month, its lowest since March and down from 56.0 in June.

Global factory growth eased in July, while production growth slipped to a six-month low, a compilation of national surveys showed.