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British Manufacturing Sector Retains Robust Momentum

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U.K. manufacturing sector continued to expand in January, reflecting improvement in output and new orders, survey data from Markit Economics showed Monday. Although the pace of expansion eased from December, the survey indicates a strong start to the economy.

The seasonally adjusted Markit/Chartered Institute of Purchasing & Supply Purchasing Managers' Index fell more-than-expected to 56.7 in January from 57.2 in December. A reading above 50 indicates expansion in the sector.

Economists had forecast the reading to fall to 57.1 from December's originally estimated score 57.3. Although the PMI currently stands at its lowest level in three months, it is still well above the series average of 51.3 and signals improvement in operating conditions in each of the last ten months.

Companies scaled up output in response to stronger demand. There were reports of improved demand from the domestic market and rising levels of new business from overseas. The source of export orders was broad-based in January.

The ongoing rebound in the sector led to further job creation at the start of the year. The rate of jobs growth remaining close to November's two-and-a-half year high.

Average purchasing costs rose for the ninth straight month in January as prices paid for inputs increased. Nonetheless, the rate of increase eased to its weakest since last July.

The combination of higher purchasing costs and improved demand led to a further solid increase in average selling prices in January. Output charges rose for the seventh successive month and at a pace close to December's 27-month record.

The illusive export market has long been heralded as the key to unlock U.K. economic growth and in manufacturing it appears to be coming to fruition, with new business rates climbing fastest in nearly three years, said David Noble, Chief Executive Officer at CIPS.

Howard Archer, chief U.K. economist at IHS Global Insight said PMI survey offers real hope that UK growth is starting to become more broad-based, with investment and exports increasingly kicking in to help matters.

While the stronger pound could begin to hinder exports soon, the easing of both credit constraints and the squeeze on households' real pay should support a further revival in domestic demand for investment and consumer goods during 2014, said Samuel Tombs, a U.K. economist at Capital Economics.

The Bank of England is expected to leave its key rate at a historic low 0.50 percent this week. The bank is more likely to reconsider its forward guidance that ensures no rate hike until unemployment falls to 7 percent.

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