January 2, 2018 / 10:51 AM / a year ago

UPDATE 1-UK factory growth cools in December from four-year highs -PMI

 (Adds comments from economists)
    LONDON, Jan 2 (Reuters) - Growth in British manufacturing
cooled last month from four-year highs struck in November, but
the sector remained a bright spot in Britain's economy heading
into 2018, a survey showed on Tuesday.
    In contrast to accelerating growth in the euro zone, the IHS
Markit/CIPS UK Manufacturing Purchasing Managers' Index (PMI)
dropped to 56.3 from 58.2 in November.
    That was at the bottom end of forecasts in a Reuters poll of
economists that had pointed to a reading of 58.0.
    While growth in new business, output, export orders and
employment slowed in December, the PMI stayed above its average
for 2017 as a whole.
    Alan Clarke, a fixed income strategist with Scotiabank, said
the disappointing figures for the month probably represented
only a temporary setback for the sector which accounts for 10
percent of the country's overall economic output.
    "I would only start to worry if we see further declines of
this magnitude in the coming months," Clarke said.
    Sterling and British government bond prices were unchanged
by the survey.
    Overall, it added to signs that British manufacturers will
prosper next year, when a slowdown in the overall economy is
likely to deepen as Britain approaches its departure from the
European Union in March 2019.
    British factories have been boosted by a resurgent European
economy above all else. 
    Last month, euro zone manufacturers enjoyed their strongest
growth since PMI records began more than 20 years ago, easily
outpacing their British peers.           
    Samuel Tombs, an economist with consultancy Pantheon
Macroeconomics, said the gap between British and euro zone
manufacturers in December was the widest since June 2008.
    "We expect the recovery in the manufacturing sector to lose
its current vitality soon," he said, citing growing backlogs of
work caused by recruitment problems and cuts to investment since
the Brexit vote.
    Cost pressures faced by British factories cooled to a four-
month low -- good news for Bank of England policymakers who
think consumer price inflation is already around its peak.
    But the PMI also showed manufacturers added staff at the
slowest pace in six months, adding to signs that job creation, a
highlight of Britain's economy in recent years, is now slowing.
    PMIs for the construction industry and the much larger
services sector are due on Wednesday and Thursday.
    - Detailed PMI data are only available under licence from
Markit and customers need to apply to Markit for a licence. 
    To subscribe to the full data, click on the link below: www.markit.com/Contact-Us
    For further information, please phone Markit on +44 20 7260
2454 or email economics@markit.com

 (Additional reporting by William Schomberg; Editing by Matthew
Mpoke Bigg)
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