Manufacturing activity slowed in October as companies increased prices at their sharpest rate in three months to cope with rising costs, figures showed today.
The Chartered Institute of Purchasing and Supply (CIPS) said its barometer measuring activity dipped to 53.7 in October from 54.5 in September - lower than market expectations.
However, the survey highlighted "robust demand" for new orders from the domestic market, with exports also showing a solid gain off the back of contracts in Europe, China and Russia.
Roy Ayliffe, director of professional practice at CIPS, said: "Purchasing managers saw strong growth in the manufacturing sector in October, albeit at a more moderate rate than last month.
"The rising cost of raw materials resulted in companies having to increase their output costs, which rose to their highest level for three months."
Companies reported higher prices for metals, chemicals and plastics, although input costs were offset by weaker fuel costs. However, it seemed manufacturers managed to pass on increased prices to their customers, with output costs rising to a three-month high.
Meanwhile, the level of employment remained stable in October as firms remained cautious about recruiting extra workers in the face of rising cost pressures.
Mr Ayliffe said: "We saw little movement in the sector's employment levels as purchasing managers reported improvements in staff productivity and plant efficiency, which allowed companies to meet output demands without the need to raise staff levels."
The figures came a day after the CBI said retail sales had taken a knock for the first time since March.
However, analysts believe the figures are unlikely to deter the Bank of England from hiking interest rates from 4.75 per cent to 5 per cent next week.
Simon Wallace, an economist at the Centre for Economics and Business Research, said: "Despite the slowing of manufacturing expansion, the sector has now grown consistently for the past 15 months and the index remains significantly above its historic trend.
"The inflationary pressures from higher output prices are more likely to concern the Bank and may even force the members to start considering a further rates rise early in 2007."
PA