The British manufacturing sector expanded at its fastest pace this year in October thanks to robust factory output growth and a jump in export orders to a 15-month high, a report showed yesterday. The Chartered Institute of Purchasing and Supply/RBS purchasing managers? survey also showed that prices at the factory gate rose for a third month running.

The small industrial firm index unexpectedly climbed to 51.7 in October from 51.5 in the previous month, and held above the 50.0 mark that divides expansion from contraction for the third straight month. Economists had forecast it to remain steady at 51.5.

Although output and new orders continued to expand, companies shed jobs for a seventh straight month as they struggled to pass on rising input prices due to the climbing cost of oil and other commodities such as steel.

The output index edged up to 53.1, matching the highest this year in January and suggesting that manufacturing has turned the corner after official figures showed it in recession in the first half of the year.

The strength in the manufacturing sector may also lend weight to a view that the Bank of England is increasingly unlikely to cut interest rates further from 4.5 percent to counter a recent slowdown in economic growth.

<B>Little pricing power </B>

New orders expanded for a fifth straight month. The index fell to 53.9 in October, but held just below 54.0 the previous month, which was the highest since December.

?Anecdotal evidence suggested that UK manufacturers benefited from improved demand from both domestic and export clients,? the report said. The exports index rose to its highest since July 2004 at 53.5 from 53.3. The report also suggested British manufacturers were having a hard time passing on their increased costs in the past month, which again stemmed from rising energy and oil prices.

The output prices index registered a third straight month of expansion, but the already-modest rate of inflation slowed, with the index slipping to 51.5 in October from 52.8.

The input prices index rose to a seven-month high of 61.7 in October from 59.7 in September as Brent crude oil futures hovered around $60 for most of October, around 25 percent higher than a year earlier.

The employment index rose to 47.7 in October from a revised 47.6 in the previous month. Employment in the manufacturing sector, which makes up less than one-fifth of the UK economy, has not risen since March.