Resurgent sector drives UK economy

Britain's resurgent manufacturing sector kept up its record performance last month, a key survey yesterday revealed, although inflation pressures continued to build.

The Chartered Institute of Purchasing and Supply's manufacturing activity index, where a reading above 50 indicates growth, maintained its all-time high of 61.5 in February while firms created a record number of jobs.

However, there was a fresh inflationary headache for the Bank of England, which is struggling to keep a lid on soaring prices.

Factories' selling prices increased at the second-fastest rate in the survey's history, as they passed on the rising costs of cotton, energy, metals, oil, plastics and timber to their customers.

Rob Dobson, senior economist at Markit and report author, said: "The latest data confirm that input cost and output price inflationary pressures remain elevated, which may raise a further eyebrow amongst the members of the Bank of England's monetary policy committee."

Consumer price inflation is running at double the central bank's 2 per cent target and is set to rise further, while interest rates have been at a record low of 0.5 per cent since March 2009.

Howard Archer, chief UK economist at forecasting group IHS Global Insight,, said the survey showed the manufacturing sector was "very much the star performer of the UK economy".

But he added: "The bad news for the Bank of England is that the survey shows elevated price pressures. As such the survey maintains pressure for the Bank to hike interest rates sooner rather than later."

Europe also faced inflation headwinds yesterday as it emerged that consumer prices in the 17-country eurozone rose 2.4 per cent year-on-year in February - the highest level since October 2008. The European Central Bank wants to keep inflation below but close to 2 per cent.