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EDITOR IN CHIEF- ABDULLAH BIN SALIM AL SHUEILI

British factory growth cools as weak pound fuels cost pressures

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LONDON: British manufacturing growth cooled unexpectedly in November as factories grappled with soaring costs caused by sterling’s slump after June’s Brexit vote, even before this week’s jump in oil prices.


Thursday’s Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) also suggested the weak pound failed to boost exports by as much as in previous months.


Britain’s economy has performed much better than expected since June’s vote to quit the EU. But a bigger test will come next year when inflation is expected to rise sharply, eating into households’ spending power.


The PMI’s gauge of prices paid by factories for materials and energy shot up at a rate just shy of October’s near six-year high, while prices of finished goods again rose sharply. Export growth, however, waned further from September’s five-and-a-half year high.


Wednesday’s 10 per cent surge in crude oil prices — after Opec and Russia agreed to restrict production — pushed the dollar cost of oil close to levels not seen in 18 months, and drove home the cost pressures facing British manufacturers.


“Once again, price growth is the key story from this reading,” said HSBC economist Elizabeth Martins, who warned the spike in oil prices risked further aggravating factory costs.


“For the manufacturing sector, this is not good news, undermining the positive effects from weaker sterling on competitiveness.” The PMI’s headline index fell to 53.4 from 54.2 in October, undershooting expectations for a rise to 54.5 in a Reuters poll of economists. Sterling, soaring 1 per cent on the day against the dollar, showed little reaction.


Business investment is another doubt hanging over the economy. The Markit/CIPS survey showed signs of weakness. “The trend in new orders for investment goods such as plant and machinery has eased sharply so far in the fourth quarter,” Rob Dobson, senior economist at IHS Markit, said. — Reuters


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