UK Factory Growth Loses Momentum Amid Price Pressures, Brexit Worries

Britain's factory sector growth eased further at the start of 2018 to a seven-month low, thanks to increased price pressures, but sustained its robust momentum even as Brexit worries cloud the economic outlook.

The Purchasing Managers' Index for the manufacturing sector fell to 55.3 from 56.2 in December, survey data from IHS Markit and the Chartered Institute of Procurement & Supply showed Thursday. Economists had predicted a score of 56.5.

A PMI score above 50 suggests growth in the sector. The latest reading was the lowest since June last year. Yet, the figure remained well above its long-run average of 51.7.

The pace of growth in new orders and output slowed further, while price pressures accelerated.

Output growth fell to a six-month low and new order intake was the slowest in seven months. Investment goods sector led the expansion in production and demand.

Foreign demand improved at one of the quickest rates over the past four years, the survey report said.

"The trend in demand will need to strengthen in the near-term to prevent further growth momentum being lost in the coming months," IHS Markit Director Rob Dobson said.

"Price trends will be watched closely to see if the upsurge is simply a one-off spike or something more embedded," Dobson added.

Input price inflation accelerated strongly as increased demand for inputs led to improved supplier pricing power and shortages of raw materials.

Output price inflation was the fastest in 11 months and one of the sharpest in the survey history, IHS Markit said. This was mainly due to an increase in prices of several raw materials and commodities.

January also had the steepest increase in output charges since April of last year as part of the increase in costs was passed on to clients.

Manufacturers remained optimistic and over 55 percent forecast production to be higher in one year's time.

ING Bank economist James Knightley point out that the latest worries on the prospect of a Brexit transitional deal post March 2019 is not helping. "This uncertainty still has the potential to weigh on activity very broadly and deter the BoE from hiking," he added.

The Bank of England is set to announce its latest interest rate decision on February 8.

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