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UK Factory Sector Remains Subdued Ahead Of Brexit

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UK manufacturing growth improved in November, but activity remained subdued amid a second consecutive month of decline in export orders, though domestic demand increased as Brexit worries prompted clients to stock up on supplies.

The CIPS manufacturing purchasing managers index rose to 53.1 from October's 27-month low of 51.1, survey data from IHS Markit showed on Monday. Economists had forecast a score of 51.7.

A PMI reading above 50 suggests growth in the sector.

However, the latest PMI was among the weakest registered over the past two-and-a-half years, IHS Markit said.

"Based on its relationship against official ONS data, the survey indicators suggest manufacturing output is on course to make no contribution to GDP growth in the final quarter, with a clear risk of output contracting unless December proves a stronger month," Rob Dobson, director at IHS Markit, said.

New orders grew in November after a decline in the previous month. Growth was led by the domestic market with new product launches and client stock-building.

The latest fall in export orders after the October decline, marked the first back-to-back contractions since early-2016. Reduced client interest from abroad and ongoing Brexit uncertainties were to blame for the decline.

With the Brexit uncertainty, exchange rate concerns and a slowing economy weighing on confidence, the degree of optimism among manufacturers' dipped to a 27-month low.

Employment in the factory sector rebounded with a rise in staffing levels amid increased activity, new product launches and preparations for expected future demand.

Input costs and output prices rose at faster rates and remained above their survey averages, yet price increases were comparatively mild, the survey found.

Results of a separate survey released by the manufacturers group EEF showed that there was "a clear divergence in the last quarter between domestic and export orders".

The domestic picture backed anecdotal evidence that companies are putting in plans to increase inventory levels ahead of Brexit on March 29, the EEF said.

The Q4 EEF/BDO Manufacturing Outlook survey showed that the export order balance halved in the third quarter.

"Overseas demand has helped sustain manufacturing growth over the last few years and the EU remains the most important trading block for UK manufacturers," Tom Lawton, head of manufacturing at BDO, said.

"It is crucial that Britain is seen to be open for business with the EU and other key global markets."

The EEF trimmed its manufacturing growth projection for next year to 0.3 percent from 0.5 percent, while raising the forecast for this year to 1.1 percent from 0.9 percent.

The EEF/BDO survey covered 329 companies from October 31 to November 21.

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