Data suggests no cut in interest rates this month

The Chartered Institute of Purchasing and Supply said stronger output growth from the UK's factories was accompanied by rising inflationary pressures, which most likely dash any hopes of a cut in interest rates from the Bank of England on Thursday.

The City is looking for rates to be cut to ease concerns caused by the credit crunch, but the Bank of England's Monetary Policy Committee remains worried about inflationary pressures.

Lucy O'Carroll, director of research at Bank of Scotland's treasury division, said: "This week's interest rate decision is a finely-balanced one and, as a result, the PMI surveys will play a crucial role in it.

"The MPC is currently struggling with the challenge of balancing a negative growth outlook, stemming from the recent financial-market turmoil, against the inflationary risks from higher oil and commodity prices."

She added: "This survey therefore increases the chances of rates remaining on hold at 5.75%, though it does not guarantee that outcome.

"After all, manufacturing now accounts for only 15% of activity in the UK economy."

However, it was a different story on the other side of the Atlantic as the pace of growth in the US manufacturing sector slackened.

"The trend of this data is down and that doesn't speak well for economic growth," said Bucky Hellwig, of Morgan Asset Management.

Meanwhile, back in the UK, output price inflation rose within a whisker of September's record high. The survey also showed robust order books for industry, with exporters reporting improved demand from continental Europe, Asia and the Middle East.

At the same time, input price inflation picked up to a four-month high, largely because oil prices rose to record highs close to $100 a barrel last month.

Howard Archer, chief UK economist at Global Insight, said: "At this stage, we suspect that the MPC will delay cutting interest rates until early 2008."

Sterling leapt on the likelihood that rates would remain on hold. Last night, £1 bought $2.067, compared with $2.056 at the close of play on Friday night.

Meanwhile, the PMI snapshot of British industry climbed to 54.4 last month, the survey revealed, well above the 50 divide between growth and contraction, from a downwardly revised 52.8 in October. Analysts had forecast a fall to 52.5.

Rob Dobson, an economist at NTC, said: "The UK manufacturing sector showed resilience in November, regaining much of the momentum lost in the previous month.

"This suggests that part of the marked slowdown may have been solely the result of a hit to business confidence following the onset of the credit crunch."

The figures tally with a survey from the Engineering Employers' Federation, which showed manufacturers enjoyed healthy growth in the final quarter of the year.

Manufacturing activity in the eurozone also picked up pace in November, recovering from October's 26-month low.

Separately, other data last night revealed that retail sales have seen only modest growth as consumers prepare for a "very price-conscious" Christmas.

The British Retail Consortium said like-for-like UK sales rose 1.2% in November, compared with 12 months ago - higher than October's growth of 1% but well below the 2.4% average growth for 2007 so far.

Much of the rise came from a surge during the last week of November as retailers tempted shoppers with discount deals.

Kevin Hawkins, director general of the BRC, said: "This result was not unexpected, given that November is traditionally a quiet month for sales and that many consumers are feeling apprehensive about next year.

"This points yet again to a very price-conscious Christmas for many consumers."

The three-month trend rate of like-for-like sales growth in November fell to 1.8% from 2% in October, and to 3.8% from 3.9% for total sales, which reflects growth in retail space, the BRC said.

The figures showed November clothing sales were lower than the same month last year, with womenswear in particular suffering.