LONDON (Reuters) - British manufacturing grew slightly faster in January thanks in part to a modest recovery in export orders, and trimmed prices as raw material costs fell at their quickest rate since May 2009, a survey showed on Monday.
Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) rose to 53.0 from an upwardly revised 52.7 in December, beating a Reuters poll forecast for 52.6 and holding comfortably above the 50 mark that signals growth.
Overall, the survey suggested British factories will provide a modest contribution to Britain’s economic recovery, but that consumers and the much larger services sector will be a more powerful driver of the upturn.
Sterling fell against the dollar and euro following Monday’s survey, despite showing an improvement, as investors focused more on international themes like global disinflation.
The PMI suggested manufacturing output is rising at a quarterly pace of around 0.2 percent, according to survey compiler Markit, only a slight improvement on the 0.1 percent growth seen in the last three months of 2014.
“The domestic market remains a key driver of growth, but bucking recent trends, there was also a modest increase in demand from overseas,” said Lee Hopley, chief economist at the EEF manufacturing trade association.
“However, we will need to see this sustained in the coming months before we can call it a turnaround in the sector’s export performance.”
Despite expanding last year at the fastest annual pace since 2007, Britain’s economy grew more slowly than expected in the final three months of the year, and the government will be keen to avoid signs of a further slowdown ahead of a May 7 national election.
British manufacturing output is still around 5.3 percent below its pre-downturn peak in early 2008.
Orders from both home and abroad came in faster last month, the PMI showed, with the new export orders index hitting a five-month high.
With oil prices more than halving over the last six months to below $50 a barrel, prices paid by manufacturers for raw materials fell at the fastest rate since May 2009, with this part of the index tumbling to 40.1 from 46.3, one of the sharpest declines on record.
Producers cut prices charged to customers much more modestly, though this was still their first price cut in 19 months and the biggest since September 2009.
“The scale of these disinflationary pressures makes us more certain that CPI inflation will spend a good portion of this year in negative territory,” said Martin Beck, senior economic adviser to forecasting group EY Item Club.
British consumer price inflation plunged to its lowest level since May 2000 in December and BoE Governor Mark Carney has said it is likely to turn negative in the months ahead.
“Given the (BoE‘s) concerns that low inflation could become entrenched, results like these make it highly likely that interest rates will stay at 0.5 percent throughout this year,” Beck added.
Reporting by Andy Bruce, editing by Hugh Lawson and Toby Chopra