More price rises say manufacturers

Manufacturers offered fresh hope that the UK's economy could return to growth today but signalled more price rises were on the way for consumers.

The Chartered Institute of Purchasing and Supply's (CIPS) manufacturing activity index, where a reading over 50 indicates growth, maintained its all-time high of 61.5 in February and created a record number of jobs.

But factories' selling prices increased at the second-fastest rate in the survey's history, as they passed on the rising costs of cotton, energy, metals, oil, plastics and timber to their customers.

The continued strong performance of the manufacturing sector will help the UK's economy after GDP slumped 0.6% in the final quarter of 2010.

But more price rises are bad news for consumers whose budgets are seeing the biggest squeeze since the 1920s as pay fails to keep up with inflation, and will heap more pressure on the Bank of England to raise its base rate from its record low of 0.5%.

David Noble, chief executive of CIPS, said: "Strong growth in demand across the manufacturing sector continued to put breath in the sails of the UK economy in February.

"The fly in the ointment remains macro-level inflation which is likely to go from bad to worse due to the unrest in Libya and escalating oil prices."

The report showed that growth rates in output and new orders dropped slightly from their 16-year high in January, although new export orders rose for the fifth month in a row.

Rob Dobson, senior economist at Markit and report author, said: "The latest data also confirm that input cost and output price inflationary pressures remain elevated, which may raise a further eyebrow amongst the members of the Bank of England's Monetary Policy Committee."

He warned that the strong performance of the sector, which makes up 13% of UK GDP compared with 52% for non-government services, can only partly offset the weaker parts of the economy such as services and construction.