Domestic demand leads to further manufacturing growth in October

Activity in Britain's manufacturing industry rose in October, as domestic demand drove a raft of new contracts and the weak pound help deliver further growth in export orders.

The closely-watched IHS Markit/CIPS UK Manufacturing purchasing managers' index (PMI) showed a reading of 56.3 for October, up from 56.0 in September and coming in above economist expectations of 55.9.

A reading above 50 indicates growth.

It marked the fifteenth consecutive month of sector expansion, marking a strong start to the final quarter of 2017 as output and new order growth remained "robust."

The news pushed the pound to its highest level against the US dollar since early October, up 0.2% at 1.331

Sterling also rose 0.3% versus the euro to 1.143, marking its highest level against the eurozone currency since early June.

Domestic demand was the main driver of new contracts, but export orders also continued to climb thanks in part to the sterling exchange rate, which has made UK goods cheaper for foreign clients.

Companies surveyed said they experienced new work from clients in the US and mainland Europe as well as South America and Australia.

Duncan Brock, Director of Customer Relationships at the Chartered Institute of Procurement & Supply (CIPS) said: "While trade from export markets slowed slightly, orders from overseas continued to rise for the 18th month supported by a robust global economy.

"The pound's fluctuating performance may have had some bearing on the softening in export orders, but there were continuing good levels of demand from Europe and the USA so no cause for concern."

However, the sterling exchange rate piled further price pressure on the industry, with input costs rising at their fastest pace in seven months and resulting in the steepest rate of selling price inflation since April.

The rise came amid higher demand for raw materials, which was compounded by supply-chain constraints.

Rob Dobson, director of IHS Makit, said that annual input price inflation is now "moving back into double-digit rates, which may feed through to high pressure on consumer prices in coming months".

Another rise in inflation would further squeeze British households, which are already dealing with a 3% jump in consumer prices.

Consumer goods production was on softer footing in October, as new orders eased to a seven month slow and optimism fell to its weakest level so far in 2017, the survey noted.

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.

The strength of the latest data is expected to further increase the likelihood of an interest rate hike by the Bank of England, which will issue a decision on Thursday.

"The continued robust health of manufacturing and rising price pressures will help cement expectations of the Bank of England hiking interest rates for the first time in a decade as Thursday's announcement approaches," Mr Dobson said.

The survey also showed that the pace of job growth was as its highest level in 40 months, as over 50% of manufacturers forecast that output growth would be higher in one year's time.