UK manufacturing sector growth slows

Britain's manufacturing sector grew in February, albeit at a slower pace than in the previous month, raising chances the sector will be a driver of growth for the overall economy in the first quarter.

The Markit/CIPS Manufacturing Purchasing Managers' Index (PMI) ticked down to 51.2 from a slightly downwardly revised 52.0 in January, which was the highest level since May, data compiler Markit said on Thursday.

The reading fell short of analysts' forecasts for 51.8 but was still above the 50 mark which separates growth from contraction.

"This raises hopes that the sector will post an expansion over quarter one as a whole, or at least improve on the disappointing 0.9 per cent contraction seen at the end of last year," said Markit economist Rob Dobson.

Recent more upbeat business surveys and signs that consumers are gaining confidence have dampened fears of a renewed recession after the economy contracted at the end of 2011.

But, although the Bank of England forecasts that the economy will pick up this year helped by falling inflation, its top policymakers have warned that the recovery is likely to be slow and at risk of setbacks.

The manufacturing PMI supported that view.

Output in the sector increased, driven largely by completion of work on existing contracts, and employment grew at the fastest pace since June.

However, inflows of new orders were little changed on the month as weak demand from Britain's public sector and the euro zone offset new business in the United States and Asia.

In addition, high oil prices drove the steepest rise in input costs since September after a hefty fall in January, with that component of the overall index posting the biggest month-on-month gain in more than 19 years.

"If this combination of rising costs and weak demand persists, sustaining output growth and job creation will become increasingly difficult," Dobson said.

Mainly as a result of higher input costs, factory-gate prices also rose at the fastest pace since September.

Moreover, British wage deals showed a median increase of three percent in the period between November and January, up from 2.5 per cent between October and December, Thomson Reuters' Incomes Data Services said.

While rising wages may boost consumer spending, they may worry the central bank, which predicts inflation will fall back to its target later this year.

There was also positive news from the smaller construction sector, where the value of projects started between December and February rose by 17 per cent compared to a year ago, according to construction industry analysts Glenigan.

And British house prices rose more than expected in February, data from mortgage lender Nationwide showed.

Markit will release its own construction PMI on Friday.