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Manufacturing output growth continues to slow

Manufacturing output slipped to its weakest pace of growth in eight months in March, following a slowdown in consumer goods production.

The closely watched Markit/CIPS UK Manufacturing purchasing managers' index (PMI) showed a reading of 54.2 in March, down from 54.5 in February, and falling short of economists' expectations of 55.0.

A reading above 50 indicates growth.

Survey data showed that the biggest slowdown came from consumer goods producers, which logged "only modest" growth, raising fears about the effect of rising inflation - sparked by the weak pound - on consumer demand.

While sterling's collapse in the wake of the Brexit vote has boosted exports, by making British goods more competitive internationally, experts say there are trade-offs to consider.

Duncan Brock, director of customer relationships at the Chartered Institute of Procurement & Supply (CIPS) said: "Despite the confident mood, the depreciation in sterling which has supported exporters has come at a price.

"The reduced buying power of the pound has led to the 11th consecutive rise in input costs with consumers feeling the effects in the form of higher prices on the high street.

"Supplier delivery times have also begun to lag, clogging up the supply chains of British manufacturing.

"With the rate of new order growth showing early signs of easing in March, manufacturers must act to ensure they are not locked into costly contracts. Now is not the time for manufacturers to rest on their laurels."

The weaker-than-expected data weighed on the pound, which fell 0.3% against the US dollar to trade at 1.249, and fell nearly 0.6% versus the euro to 1.171.

The survey showed that manufacturers saw input costs increase at one of the quickest rates in the survey's history last month, with companies again blaming higher costs on the sterling exchange rate and rising commodity prices.

But business sentiment soared to a 10-month high, with nearly 52% of companies now forecasting a rise in production in 12 months' time, while only 6% expect production to fall.

The optimism "encouraged" companies to hire more employees in March.

Headcounts rose for the eighth consecutive month, while job growth increased at the fastest pace in nearly a year and a half.

Lee Hopley, a chief economist for manufacturing organisation EEF, said that while the data showed a "solid quarter" of expansion, it was signalling further challenges ahead.

He said: "The indicator may well provide a snapshot of what we can expect in the wider economy over the coming year, with a slight deceleration in activity driven mainly by consumer spending tempered by rising prices and squeezed real incomes.

"Today's data certainly doesn't set off any alarm bells but it does signal that the consumer, one of the big props of UK growth in recent years, is already under the cosh and if there is any loss of momentum in the global economy, these strong manufacturing indicators could falter."

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