U.K. Manufacturing Prices Rise as Factories See Solid Growth

(Bloomberg) -- U.K. manufacturing growth remained “solid” in September and inflation pressures built, according to an industry survey.

The findings, in IHS Markit's monthly purchasing-manager survey, are likely to keep the Bank of England on track toward an interest-rate increase. Governor Mark Carney said Friday that there may be a need for tightening in the “relatively near term.”

While the key factory index slipped to 55.9 from 56.7 in August, that's still well above the 50 level that divides expansion from contraction. A measure of input costs jumped and factories are passing on at least some of the increase. Output prices advanced at the fastest pace in four months.

BOE officials are counting down to a meeting in November at which they may announce the first increase in interest rates in more than a decade. There is plenty for them to assess, with figures last week showing improving confidence and consumer numbers contrasting with continued sluggish growth and a disappointing current-account deficit.

Markit's survey showed that increases in new orders slowed in September, though they remained above the long-run average. While some respondents cited a boost from the weaker pound, it was “less prominent as a factor than earlier in the year.”

The pound declined on Monday on concerns that Prime Minister Theresa May's government is becoming unstable. Sterling fell to $1.3301 after the report, the lowest level since Sept. 14, and was 0.7 percent weaker at $1.3310 as of 10:22 a.m. in London.

“On balance, the continued solid progress of manufacturing and export growth is unlikely to offset concerns about a wider economic slowdown,” said Rob Dobson, director at IHS Markit. “But the upward march of price pressures will add to expectations that the BOE may soon decide that the inflation outlook warrants a rate hike.”

Much will depend on the performance of services, the biggest part of the U.K. economy. Markit's gauge of the sector, due Wednesday, is forecast to have held at 53.2 in September.

--With assistance from Mark Evans Harumi Ichikura and Lucy Meakin

To contact the reporter on this story: Fergal O'Brien in London at fobrien@bloomberg.net.

To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net, Andrew Atkinson, David Goodman