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Last Updated: Tuesday, 2 May 2006, 10:33 GMT 11:33 UK
UK manufacturing 'sees pick-up'
Finished goods on pallets
Output and orders are up
The UK manufacturing sector enjoyed a strong upturn in fortunes during April, according to a survey of managers.

The Chartered Institute of Purchasing and Supply (CIPS) said its Purchasing Managers' Index rose to 54.1 in April, the highest level for 17 months.

Growth in manufacturing output hit its highest level since November 2004, the survey found, and new orders also grew thanks to a pick-up in domestic demand.

Improved demand from the US, Asia and Europe helped to lift export orders.

"This is a very encouraging survey for UK industry and adds weight to the view that the long-awaited rebalancing in economic growth is starting to happen," said Andrew McLaughlin, group chief economist at RBS which produced the report with CIPS.

Rate decision

The UK manufacturing purchasing managers' index has further dampened the prospect of rate cuts in the near-term
James Knightley, ING Financial Markets

The CIPS figures are the latest indication that the fortunes of the manufacturing sector may have improved in recent months.

Last week, figures from the Office for National Statistics (ONS) showed that the UK's economy grew by 0.6% in the first three months of the year, helped by stronger-than-expected growth in the manufacturing sector of 0.7%.

Analysts said the strength of the CIPS report reduced the chance of any cut in UK interest rates in the short term.

The Bank of England's Monetary Policy Committee meets later this week to decide if a change from the current rate of 4.5% is needed.

"The UK manufacturing purchasing managers' index has further dampened the prospect of rate cuts in the near-term," said James Knightley, an economist at ING Financial Markets.

"The (CIPS) report will also aid the case for those expecting the Bank of England to raise interest rates again.

"But with inflation pressures remaining subdued and consumer weakness continuing, we doubt that the BoE will be forced into changing interest rates anytime soon."

Costs squeeze

The CIPS manufacturing output index rose to 56.5 in April, from 51.5 in March.

The pick-up in output and orders also led to a slight rise in employment levels in the sector, CIPS said.

Companies continued to see a rise in input costs, with oil and energy price rises the main factors.

However, CIPS said that companies were continuing to absorb most of the cost increases rather than pass them on to customers.

The rate of increase in prices of goods leaving the factory gate was lower in April than in March, and "well below" the rise in input prices, CIPS said.

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