A survey has shown that British manufacturing activity growth slowed by more than expected in March after the inflow of orders slowed sharply, but firms still ramped up prices at a record rate to cover rising costs.
The Markit/CIPS manufacturing PMI headline index fell to a five-month low of 57.1 in March from a downwardly revised 60.9 in February. Analysts had expected a more modest fall. Any figure above 50 still means that activity expanded.
The output prices index, however, rose to 65.2 in March from 63.6 in February, the highest since the series began in 1999.
The figures highlight the dilemma facing the Bank of England over how to tackle persistently above-target inflation without harming a fragile economic recovery.
The slowdown in manufacturing - which has so far been the one bright spot in the UK economy - is likely to reinforce expectations the central bank will hold off raising interest rates until the recovery is on a firmer footing.
'Persistent high oil prices due to the unrest in the Middle East and North Africa, rising global prices for many other raw materials and higher import prices due to the weak pound, all led to a survey-record rise in prices charged by manufacturers,' said Markit economist Rob Dobson.
The survey also showed that firms' raw materials costs continued to rise in March, albeit at a slightly slower rate than in February. And companies continued to take on new staff, though not at February's record pace.
The let-up in manufacturing activity was driven by the weakest growth in new orders in five months, although export orders growth stayed within sight of February's high.
Markit said the slowdown in demand was most pronounced in the consumer goods sector, which was virtually stagnant, and indicated a fall in domestic orders for such goods.
The manufacturing sector has recorded strong growth over the last year but it accounts for just 13% of total economic output in the UK.
