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Business News

Rising oil costs hit growth figures


Growth in the UK's manufacturing was weaker than expected in February as rising oil costs drove up prices at their fastest rate in more than 19 years.

The Markit/CIPS survey, where a reading above 50 represents growth, showed the sector grew at 51.2, down from 52 the previous month and weaker than City expectations of 52.1.

Manufacturers battled the sharpest monthly rise in input prices for more than 19 years and the second sharpest in the survey's history after three months of declines.

Rising oil prices, which have been driven as high as 109 US dollars a barrel in recent week amid tensions over Iran's nuclear programme, pushed up the cost of chemicals, metals, plastic and transport for businesses.

The rising prices threaten to derail the sector's recent rebound amid signs that new work from domestic and overseas clients stagnated.

Rob Dobson, senior economist at Markit, said: "The latest PMI survey brought the headwinds faced by manufacturers into sharper focus.

"Cost inflation also resurfaced, picking up sharply on the back of high oil prices and associated increases in the costs of chemicals, energy and transportation.

"If this combination of rising costs and weak demand persists, sustaining output growth and job creation will become increasingly difficult."

The prices manufacturers charge for their goods rose at the quickest pace for five months.

But this was not as fast as the rise in input costs, suggesting that their profit margins are in danger of being squeezed as they struggle to hike prices amid weak demand.

The manufacturing sector declined in the final quarter of 2011, dealing a blow to Chancellor George Osborne's plans to rebalance the economy through increasing exports.

However, it returned to growth in January amid rising orders from emerging markets and falling costs.

Today's surveys revealed that new orders were unchanged month-on-month as the UK market was hit by reduced levels of business from the public sector, which is being squeezed by the Government's austerity measures.

The eurozone crisis brought about a fall in orders from the continent, which offset rises from Asia and the US.

Despite the slowdown in the rate of growth, the number of people employed by the sector increased for the second month in a row, and although the increase was moderate it was still the quickest pace since June.

CIPS chief executive David Noble said: "The manufacturing sector consolidated on January's sharp increase in growth, but the return of rising oil prices and lacklustre demand is a cause of some trepidation.

"Whilst the tentative boost in employment is a sign of increased confidence in the sector, this can be attributed to efforts to fulfil the growth in new orders seen at the beginning of the year."