May 2, 2008 / 5:07 AM / 12 years ago

POLL-UK manufacturing growth slows, prices soar-CIPS

* CIPS/NTC Purchasing Managers Index <PMI/GBMA1> for UK manufacturing sector 51.0 in April (March 51.3), close to forecasts.

* Headline business activity index weakest since January and second-weakest reading for the past two years.

* Highest output price index since series began in 1999; input price index second highest since series began.

By Christina Fincher

LONDON (Reuters) - Growth in Britain’s manufacturing sector slowed in April, as expected, but there was no let-up in inflationary pressures as firms ratcheted up prices at the fastest rate on record.

Evidence that companies are passing on surging raw material costs to customers may concern Bank of England policymakers as they try to cushion the economy from the effects of the credit squeeze.

The Chartered Institute of Purchasing and Supply/NTC purchasing managers’ index slipped to 51.0 in April from 51.3 in March. Although marginally above the consensus forecast of 50.8, it was the weakest reading since January and the second weakest in the past two years.

The 50 mark separates expansion from contraction.

The output price index rose to 61.9 from 60.6 in the previous month. Output price inflation has scaled a fresh series high every month of 2008 so far.

The input price index rose to 78.5, the second highest reading in the survey’s history, from 76.7. Companies indicated that sterling’s weakness against the euro was increasing the cost of imported raw materials.

“We’ve got very elevated pricing readings despite another slight moderation in growth,” said Ross Walker, UK economist at RBS.

“There’s clearly been a step change in activity since the latter part of last year but at least there are signs of stabilisation, albeit at a slower rate of output. The sector hasn’t collapsed.”

Sterling rose after the figures as dealers bet that high price readings would make it harder for the Bank of England to cut interest rates.

Manufacturing new orders declined for a fourth month, with export orders falling at an even faster rate than domestic orders, suggesting any boost from a weaker pound is being more than offset by weaker global growth.

The survey compiler said cost inflationary pressures were especially noticeable in the consumer goods sector.

The output index slipped to 50.9, its weakest since June 2005, from 52.1. While a decline in orders was the main factor restricting output growth, some firms indicated that delays in the delivery of raw materials had disrupted production schedules.

For full British manufacturing data.... <PMI/GBMA1>

For text of survey .................[nL30935470]

For overall guide to all PMIs......... <PMI/INDEX1>

Editing by Mike Peacock

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