Inflation climbs to a 13-year high in the British manufacturing sector

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The Independent Online

Inflation in the UK's manufacturing sector has risen to its highest since 1995, according to the monthly purchasing managers index, produced by the Chartered Institute for Purchasing and Supply (CIPS). The survey, a leading indicator for the economy, showed that during March input costs rose at their highest rate since April 1995, while manufacturers output prices were running at their highest level since 1999. Output growth, by contrast, was unchanged on the previous month.

There was some evidence of a small upturn in export orders after the near 20 per cent decline in sterling last summer.

Roy Ayliffe, the director of professional practice at CIPS, said: "March saw a tougher time for manufacturers as purchasing managers reported high increases in input prices of essentials such as oil, chemicals and transportation, which were compounded by the weakness of sterling against the euro and cost of raw materials sourced in the eurozone."

Meanwhile, the figures on Easter shopping confirmed that the retail sector is even more hard pressed. The cold weather and early timing of this year's holiday took their toll, with footfall down 9 per cent on Easter 2007, according to the research group SPSL.

The overall picture is of an economy facing a marked, but not yet catastrophic, downturn in activity, but where the Bank of England's freedom to cut rates is constrained by externally generated inflationary pressures – the delicate balancing act referred to on Monday by the Governor of the Bank, Mervyn King.

The task of the Bank's Monetary Policy Committee is complicated by tougher conditions in the money markets, where the credit squeeze has upset the MPC's recent rate reductions. The MPC will meet next Thursday, with markets pricing in a 70 per cent chance of a further quarter-point cut in interest rates.

The Office for National Statistics reported that the profitability of non-bank corporations in the fourth quarter of 2007 was 15.5 per cent, up from 15.4 per cent for the previous quarter. The annual net rate of return in 2007 was 15.2 per cent, compared with 14.5 per cent for 2006. Roger Bootle, economic advisor to accountants Deloitte said: "I expect nominal profits in the overall economy to fall by 2.5 per cent or so this year. The real pain will be felt next year."