* British manufacturing activity at seven-month high
* Sector creates greatest amount of jobs since March 2011
* Input costs rise for first time since Jan, still subdued
* Labour productivity, unit wage costs fall in Q1 - ONS
* GRAPHIC: EU manufacturing PMIs link.reuters.com/xup22v
(Adds quotes, details, labour productivity data)
By Ana Nicolaci da Costa
LONDON, July 1 British manufacturing activity
expanded at its fastest rate in seven months in June, the latest
sign that the consumer-led recovery is broadening out and
becoming more balanced.
New orders flowed in at the fastest rate since November and
manufacturers took on staff at the quickest pace since March
2011, although output growth slowed slightly and input costs
rose for the first time since January.
Analysts said the strength of the data reinforced the case
for an interest rate hike this year, as did a separate report
showing lower productivity in the first quarter of 2014.
"An impressive and encouraging survey across the board,"
Howard Archer, chief UK economist at IHS Global Insight said
about the manufacturing survey.
The Markit/CIPS UK Manufacturing Purchasing Managers' Index
(PMI) rose to 57.5 in June from 57.0 in May - its highest since
November and beating expectations for a small fall in a Reuters
poll. It also topped readings in other European countries.
Rob Dobson, senior economist at Markit, expected
manufacturing output in the second quarter to have expanded by
more than the 1.5 percent seen in the first quarter.
"With (BoE) Governor Mark Carney stressing that the strength
of data will drive when the Bank of England will first edge up
interest rates, the robust June manufacturing PMI will likely be
seen as supportive to a move in late-2014 rather than
early-2015," Archer added.
British government bonds fell and sterling hit its highest
in nearly six years after higher-than-forecast manufacturing
data added to the case for a rate rise this year.
BoE officials have recently given mixed signals on the
timing of a potential interest rate rise. While they say markets
have underestimated the likelihood of a move in 2014, they also
think more slack needs to be used up before that happens.
Data from the Office for National Statistics on Tuesday
suggested this could happen faster than the BoE expects, as weak
productivity means industries have to employ more people to
produce the same amount of goods.
Output per hour fell by 0.1 percent in the first three
months of the year, the ONS said, suggesting a sharp pick-up in
productivity will be needed for full-year growth to match the
BoE's 1 percent forecast.
Pay pressures remain modest, however. The ONS said unit wage
costs for the whole economy eased 0.5 percent and for
manufacturing fell 1.8 percent in early 2014 - below the BoE's
forecast for a 1 percent rise this year.
"A solid recovery is in train... That has not yet translated
into much pick-up in wage growth yet, but some surveys do
suggest building pressure," said Rob Wood, chief UK economist at
"There is a clear case for starting the process of moving
away from emergency settings of monetary policy over the next
He expected the BoE to raise rates by 25 basis points in
November from a record-low of 0.5 percent currently.
(Editing by Hugh Lawson)