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UK factory growth slows, price pressures rocket again

[LONDON] Growth across British factories cooled last month as cost pressures lurched higher, according to a survey on Monday that painted a mixed picture for Bank of England (BOE) officials who see interest rates rising soon.

The IHS Markit/CIPS UK Manufacturing Purchasing Managers'Index (PMI) fell to 55.9 from a downwardly revised 56.7 in August, undershooting the consensus of 56.4 in a Reuters poll of economists.

While the survey still signalled a fairly solid pace of expansion, softer growth in new orders and a slowdown among producers of investment goods were unpromising pointers for the months ahead.

"The growth slowdown in September is a further sign that momentum is being lost across the broader UK economy," said Rob Dobson, director at IHS Markit, which compiles the survey.

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There were also signs more inflation could be in the pipeline, arguably complicating matters for BOE rate-setters who must balance a sluggish economy against rising prices caused in part by sterling's plunge following last year's Brexit vote.

Costs paid by factories for goods shot up at the fastest pace since March, the PMI showed, spurred in part by an increase in commodity prices and capacity constraints in the supply chain.

"This will likely exert further upward pressure on prices, dent profitability and potentially disrupt production schedules in coming months," Mr Dobson said.

It will add to expectations the BoE will hike interest rates from their record low 0.25 per cent soon, Mr Dobson added.

A majority of economists polled by Reuters last week expect the BOE will raise interest rates in November, although most also thought it would be a mistake to hike right now.

Official economic growth figures published last week showed manufacturing output contracted 0.3 per cent in the second quarter compared with the first quarter.

PMIs for the construction industry and all-important service sector are due to be published on Tuesday and Wednesday.

REUTERS