November 1, 2017 / 10:26 AM / a year ago

CORRECTED-UPDATE 1-UK factories report stronger activity in October - IHS Markit

 (Corrects name of firm to IHS Markit)
    By David Milliken
    LONDON, Nov 1 (Reuters) - British manufacturers reported
robust growth last month and rising inflation pressure, an
industry survey showed, adding to the chances that the Bank of
England will raise interest rates on Thursday for the first time
in a decade.
    The IHS Markit/CIPS manufacturing purchasing managers' index
(PMI) rose to 56.3 in October from an upwardly revised 56.0 in
September. That exceeded its long-run average and bucked
economists' forecasts in a Reuters poll for a slight decline.
    "UK manufacturing made an impressive start to the final
quarter of 2017 as increased inflows of new work encouraged
firms to ramp up production once again," said Rob Dobson, a
senior economist at IHS Markit, which compiled the data.
    "The domestic market remained strong, whereas new export
orders increased at a slightly slower pace, the latter showing
signs of being hit by the recent strengthening of sterling," he
    The pound gained further after Wednesday's data, climbing to
a four-and-a-half month high against the euro             and
its highest in two weeks against the U.S. dollar         .
    Sterling is still down more than 10 percent from its level
before Britain voted to leave the European Union in June 2016,
but Barclays banker Mike Rigby said his clients would be wary of
further gains after Thursday's BoE decision             .
    "Although demand from both home and overseas markets remains
robust, manufacturers will have half an eye on what the Monetary
Policy Committee decides to do tomorrow," he said.
    British manufacturers enjoyed their strongest growth this
year in the three months to the end of September, data showed
last week, and Dobson said the sector appeared to be continuing
to expand at a quarterly rate of around 1 percent.
    The economy overall saw only lacklustre growth in the third
quarter, expanding by 0.4 percent for its weakest year-on-year
growth in four years.
    Nonetheless, most economists polled by Reuters expect the
BoE to raise rates for the first time in a decade on Thursday,
increasing the Bank Rate to 0.5 percent from a record-low 0.25
    Central bankers are likely to be concerned by signs of
growing inflation pressure in the PMI survey. Manufacturers
reported that raw-material costs were rising by the most since
March, and in turn they were increasing the prices they charged
customers at the fastest rate since April.
    Headline consumer price inflation reached a five-year high
of 3.0 percent in September, and the cost of raw materials rose
8.4 percent on the year, according to official data.
    The National Institute of Economic and Social Research, an
academic research body, said weaker productivity meant Thursday
was likely to mark the start of a series of rate rises from the
BoE, peaking at 2 percent in 2021             .
    The BoE has previously said that any rate rises would be
limited and gradual, and most economists polled by Reuters doubt
rates will increase at all next year.

 (Editing by Larry King)
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