UK factories return to growth, prices rise by most in a year, PMI shows

LONDON (Reuters) - British manufacturers reported a return to growth last month after a long slowdown, according to a survey published on Monday, but the higher prices charged by firms may add to the Bank of England's caution about cutting interest rates.

The final reading of the S&P Global UK Manufacturing Purchasing Managers' Index for May rose to 51.2 from 49.1 in April, its highest since July 2022 when a surge in energy prices was starting to hit the sector.

The May reading represented only the second time in 22 months that the index was above the growth threshold of 50.0 although it was a touch below a preliminary May reading of 51.3.

Levels of output and new orders both rose at the quickest pace since early 2022 and the recovery was broad-based.

"While the latest upturn was dependent on a strengthening domestic market, there were signs of overseas demand also moving closer to stabilisation," Rob Dobson, S&P Global Market Intelligence director, said.

The share of manufacturers forecasting higher output one year from now rose to 63% as sentiment reached its highest since July 2022, but some were worried about political uncertainty at home and abroad. Britain holds a national election on July 4.

Factories' prices rose by the most in a year after the fifth consecutive monthly acceleration in increases. However, a slower increase in costs should help stop price pressures from becoming embedded, Dobson said.

The BoE is watching closely for signs that price pressures in Britain's economy have abated enough for it to cut interest rates for the first time since the start of the coronavirus pandemic in 2020.

(Reporting by William Schomberg; Editing by Susan Fenton)