United Kingdom manufacturing sees further solid growth at end of Q3

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Sterling has risen strongly over the last week after third-quarter GDP data showed the United Kingdom economy regaining some of the momentum it lost in the first half of the year, which was seen sealing the deal on a Bank of England rate hike Thursday.

Employment increased for the third consecutive month in October.

Manufacturing activity in October was more subdued than the level seen in the previous month due to a slowdown in new orders caused by the implementation of the Goods and Services Tax, according to a private sector survey.

The pace of United Kingdom manufacturing activity rose in October, making a positive start to the fourth-quarter industrial outlook, but price pressures remained as input costs continued to rise.

However, production rose at a solid clip thanks to an otherwise broad based expansion of sub-categories in the manufacturing sector including intermediate and investment goods producers.

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Companies surveyed said they experienced new work from clients in the United States and mainland Europe as well as South America and Australia. Over half of manufacturers expect further growth into this time next year.

"UK manufacturing made an impressive start to the final quarter of 2017 as increased inflows of new work encouraged firms to ramp up production once again", said Rob Dobson of IHS Markit, which compiles the PMI survey.

Britain's factories enjoyed better-than-expected growth last month, cementing expectations that the Bank of England will deliver the first interest rate hike in a decade. The upswing in purchasing costs was linked to rising commodity prices, the exchange rate and supply chain constraints (such as a lack of vendor capacity and shortages developing for a number of inputs). Stocks of purchases rose only marginally, with the latest accumulation the weakest in the current 16-month sequence of increasing pre-production inventories.

Input costs have continued to rise, resulting in increased selling prices. "However, those manufacturers that were optimistic forecast benefits of GST materialising over the next 12 months", Dodhia added.

The October purchasing manager survey also found that inflationary pressures remained elevated, a growing concern for the Bank of England as it prepared for its Thursday summit on monetary policy. "There was further evidence of material shortage impacting the sector, leading to higher input costs and delivery delays", Andrew Harker, associate director at IHS Markit, said.

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