December 1, 2017 / 11:47 AM / 6 months ago

UPDATE 1-Booming orders help UK factories to best month since 2013

    * UK IHS Markit/CIPS factory PMI highest since Aug 2013
    * Sterling jumps as new orders surge, exports improve
    * But UK performance still lags euro zone's
    * All-important services PMI due on Tuesday

 (Adds reaction, graphics)
    By Andy Bruce
    LONDON, Dec 1 (Reuters) - British factories enjoyed their
best month in more than four years in November, suggesting
manufacturing will give a boost to the country's otherwise
sluggish economy going into 2018, a survey showed on Friday.
    The IHS Markit/CIPS UK Manufacturing Purchasing Managers'
Index (PMI) jumped to 58.2 from an upwardly revised 56.6 in
October, hitting its highest level since August 2013 and topping
all forecasts in a Reuters poll of economists.
    Sterling rose briefly against the dollar after the PMI
showed surging orders at home and from Europe's recovering
economy.
    Overall, the survey added to signs that manufacturing could
be a bright spot next year, when the slowdown in the overall
economy is likely to deepen as Britain approaches its departure
from the EU in March 2019.
    Still, the British PMI was not as strong as the euro zone's
and export orders grew faster in other major European economies
- suggesting the pound's fall since last year's Brexit vote has
yet to give British factories a big advantage.
    Higher inflation - largely due to the fall in the pound -
has pushed up costs for households and businesses this year,
contributing to Britain's lagging economic performance compared
with European peers.
    A broadening of price pressures represented a downside in
the latest PMI, with factories facing extra costs from supply
chain bottlenecks, overtaking sterling's weakness as the main
driver of price increases.
    HSBC economist Chris Hare said the solid growth among
factories and the price pressures might appear to bolster the
case for a further tightening in monetary policy by the Bank of
England which raised interest rates for the first time in a
decade last month.
    "But manufacturing only makes up 10 percent of the economy,
and the more domestically-focused service sector - worth around
80 percent of GDP - is probably more exposed to Brexit-related
uncertainty and the inflation squeeze on household income," Hare
said.
    A PMI survey of the services sector is due to be published
on Tuesday. 
    The European Commission's gauge of British factory orders
hit a 29-year high last month - but this was not enough to
prevent a drop in wider economic sentiment caused by a slowdown
among services firms.
    Manufacturing association EEF highlighted the strong growth
in the European and global economies as positives for British
manufacturers.
    "On its current course, manufacturing production is rising
at a quarterly rate approaching 2 percent, providing a real
boost to the pace of broader economic expansion," Rob Dobson,
director at survey compiler IHS Markit, said.
    Official figures on British manufacturing, which painted a
gloomier view than the PMI surveys for much of this year, have
also now started to show improvement.
    Producers of capital goods such as machinery had a strong
month, a good omen for Bank of England officials who think
business investment will accelerate next year.

    
 (Editing by Toby Chopra)
  
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