UK March manufacturing slowest in seven months

British manufacturing activity expanded at its slowest pace in seven months as output and orders growth slipped to multi-month lows, a survey showed yesterday.

The Chartered Institute of Purchasing and Supply/RBS purchasing managers' index (PMI) also showed firms increasingly passing on rising energy and raw materials costs, with factory gate prices up at their fastest in over a year. The headline PMI index eased to 50.8 in March - barely above the 50.0 mark separating growth from contraction - from February's downwardly revised 51.5. That was below analysts' forecasts for 52.0 and the lowest since August 2005.

But the figures did little to alter expectations that the Bank of England's Monetary Policy Committee would leave interest rates unchanged at 4.5 per cent this week.

"Weakness in manufacturing may not have a particularly pronounced impact on the policy discussion at this week's BoE meeting," said Daragh Maher, strategist at Calyon.

"But alongside recent softness in retail sales, it undermines some of the prevailing confidence in the sustainability of the current upswing in the economy." The eurozone PMI, however, hit a five-and-a-half-year high in March and was much stronger than expected, perhaps boding well for British exporters as recovery in their biggest market continues.

UK output growth eased to its weakest in nine months, with a reading of 51.6, while new orders growth was also at its slowest since last July, with an index level falling to 51.6 in March from 52.2.

Foreign demand for British goods also remained subdued, with the export orders index showing a reading of 50.3, little changed from February. "Hopes that manufacturing could build on the momentum established at the turn of the year have been dashed by a decline in the rate of output growth," said RBS Group chief economist Andrew McLaughlin.

"The data fall short of City ambitions for the sector while the cocktail of rising output prices and muted output is hardly good news for the Bank of England's optimistic GDP forecast." Still, policymakers are likely to be concerned about output prices, which rose in March at their fastest rate in 14 months, suggesting building inflation pressures.

Input prices also continued to rise sharply, with an index reading of 64.5, off the year's high hit in February but still markedly above the 50.0 no-change level. The employment sub-index remained below the 50.0 level for the 12th month in a row, showing a reading of 48.3.