UK manufacturers suffer from US slowdown

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The US slowdown has hit British manufacturers, contributing to their sharpest drop in orders since the start of the year, a report showed yesterday.

The CBI warned that the outlook for the manufacturing sector, which has been riding high this year, was gloomy with many firms struggling to cope with higher costs.

In its latest industrial trends survey, the employers' pressure group said the slowdown in demand had hit home in the last few weeks. Its manufacturing order books balance, which measures the difference between the number of firms reporting a fall in new orders compared with a rise, slumped to minus 20 in October from a two-year high of minus 5 in September.

Ian McCafferty, the CBI's chief economic advisor, said: "The unexpectedly strong recovery in manufacturing over the first half of the year has not been sustained. The slowdown in the US has clearly dampened export orders and domestic demand remains fragile."

The survey also showed upward pressure on inflation as more firms said they would be raising their prices in response to higher costs. The net balance of firms expecting to increase selling price in the next four months was the highest for any October since 1994. This reinforced City expectations that the Bank of England would raise interest rates next month to 5 per cent.

Paul Dales, the UK economist at Capital Economics, said: "As such, the MPC [the Bank's rate-setting committee] will remain concerned that manufacturers are intending to widen their margins. But there is a limit to how far they will be able to raise their prices against a background of weakening activity."

Howard Archer, at Global Insight, said the survey was "very disappointing". He added that "the main deterioration in the manufacturing performance has only recently occurred, which reinforces concern that the UK economy is likely to soften over the coming months".