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Manufacturing output drops amid slowdown in new order growth

Output in Britain's manufacturing industry hit a three-month low in February as new orders slowed and Brexit-induced cost pressures remained near record levels.

The closely watched Markit/CIPS UK Manufacturing purchasing managers' index (PMI) said output showed a reading of 54.6 in February, down from 55.7 in January and below economists' expectations of 55.6.

A reading above 50 indicates growth.

Despite falling further from December's two-and-a-half-year high, production and new orders were robust, with the Brexit-hit pound stoking overseas demand.

Rob Dobson, senior economist at IHS Markit, said output remained "comfortably above" the long-run average of 51.6, but growth may ease in the months ahead.

"The survey is signalling quarterly manufacturing output growth close to the 1.5% mark so far in the opening quarter which, if achieved, would be one of the best performances over the past seven years.

"The big question remains as to whether robust growth can be sustained or whether it will continue to wane in the coming months.

"The slowdown in new order growth and a drop in backlogs of work suggest output growth may slow further."

The report showed that input cost inflation in February had eased back from January's record highs, but was close to the fastest levels on record.

Sterling's 18% slump against the US dollar and 10% fall versus the euro has made the cost of imported raw materials more expensive for manufacturers.

Economists expect these pressures to be passed down the line to consumers in the form of higher prices, squeezing household spending and dragging on the economy.

Howard Archer, chief UK and European economist at IHS Markit, said domestic orders tailed off in February, pointing to a bumpy road ahead for manufacturers.

"Rising prices for capital goods and big-ticket consumer durable goods, diminishing consumer purchasing power and likely increasing business concerns and uncertainties over the economy look likely to increasingly hamper manufacturers.

"There have also been reports that consumers brought forward purchases of big-ticket items in late-2016 in anticipation of rising prices over the coming months.

"Significantly higher prices charged by manufacturers for capital goods will also likely constrain demand."

Exports expanded for the ninth month on the bounce, with stronger sales from mainland Europe, America and Australia helping to offset slower domestic demand.

Employment also expanded for the seventh month in a row as heavy-weight manufacturers and small-and-medium-sized firms recruited more staff.

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