Sterling's fall since Britain voted to leave the European Union stoked the sharpest rise in factory costs on record last month but offered little boost to exports, tainting otherwise robust manufacturing growth at the start of 2017. The Markit/CIPS UK Manufacturing Purchasing Managers' Index (PMI) edged down to 55.9 from December's 2-1/2 year peak of 56.1, matching the consensus forecast in a Reuters poll.
The survey out on Wednesday suggested Britain's economy continues to expand at a solid rate after outpacing its rivals last year, with the PMI's gauge of factory output pointing to the fastest growth since May 2014. But it also drove home the view shared by Bank of England policymakers, who meet this week, that rising prices will soon put a brake on household spending, a key driver of the economy.
Factories' raw material costs rose at the fastest pace since PMI records began 25 years ago - fuelled by the pound's near 20 percent drop against the dollar since June's Brexit vote, as well as higher prices for steel and oil. In response, manufacturers raised the prices they charged for their goods at the fastest pace since April 2011.
"With input prices rising steadily and firms increasingly looking to pass these on, this will likely eat into new orders during the course of the year and hence weigh on output," Barclays economists Andrzej Szczepaniak and Fabrice Montagne wrote in a note to clients. A separate Citi/YouGov survey of the British public on Wednesday showed inflation expectations for the year ahead rose to the highest since December 2013 in January.
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