By Andy Bruce
LONDON (Reuters) - Sterling's fall since Britain voted to leave the European Union stoked the sharpest rise in factory costs on record last month but offered little boost to exports, tainting otherwise robust manufacturing growth at the start of 2017.
Markit/CIPS UK Manufacturing Purchasing Managers' Index (PMI) edged down to 55.9 from December's 2-1/2 year peak of 56.1, matching the consensus forecast in a Reuters poll.
The survey out on Wednesday suggested Britain's economy continues to expand at a solid rate after outpacing its rivals last year, with the PMI's gauge of manufacturing output pointing to the fastest growth since May 2014.
But it also drove home the view shared by Bank of England policymakers, who meet this week, that rising prices will soon put a brake on household spending, a key driver of the economy.
Factories' raw material costs rose at the fastest pace since PMI records began 25 years ago - fueled by the pound's near 20 percent drop against the dollar since June's Brexit vote, as well as higher prices for steel and oil.
In response, manufacturers raised the prices they charged for their goods at the fastest pace since April 2011.
In previous months spiraling cost pressures had been matched with an improvement in export orders, but this faded in January's PMI. Orders from abroad rose at the weakest rate since last May, before the Brexit vote.
"With cost pressures increasingly feeding though to higher selling prices at factories, it looks inevitable that consumer price inflation will rise further in coming months," said Rob Dobson, senior economist at IHS Markit, which compiles the survey.
"The question is whether increased cost ... pressure will act as a drag on manufacturing growth going forward." Dobson said manufacturers sounded relaxed about this, with optimism at an eight-month high. A recent survey from industry association EEF also showed manufacturers were confident about the year ahead, despite doubts about the economic outlook.
"Taken alongside robust output growth, rising new order inflows and further job creation, all signs are pointing to a solid contribution to UK GDP from manufacturing during the opening quarter of 2017," Dobson said.
Manufacturing accounts for around a tenth of British economic output, and recent strong manufacturing PMIs have not fully transferred into subsequent official growth statistics.