By Andy Bruce
LONDON (Reuters) - British manufacturing has cooled only slightly from last year's heights, according to an industry survey on Monday that underscored the importance of demand from European customers, little more than a year ahead of Brexit.
Output across British factories remained near historic highs at the start of 2018 and they reported strong confidence about their prospects, the EEF manufacturers' association and accountancy group BDO said in a quarterly report.
Manufacturing was the fastest-growing sector in Britain's economy during the last three months of 2017, helped by strong global demand, official data has shown.
While the EEF survey chimed with other reports that have suggested a slight loss of momentum from last year, factories look on course to make a sizeable contribution to British economic growth in 2018.
The outlook further ahead depends to a large degree on the outcome of Britain's negotiations over the new trading relationship it will have with the European Union, after its scheduled departure from the bloc in March 2019.
The EEF survey showed two-thirds of British manufacturers reported positive demand from European customers - more than double the proportion for North American or Asian markets.
"These results do indicate continued and growing opportunities in the EU and around the world but the sector also faces the challenges of the uncertainty of Brexit and the increasing use of automation..." Tom Lawton, BDO's head of manufacturing, said.
Investment intentions cooled slightly compared with late last year, EEF said, but remained higher than the levels seen in the quarters around the June 2016 referendum.
Factory price pressures continued to rise sharply, - something that may concern Bank of England officials.
Consumer price inflation hit its highest in over five years in November at 3.1 percent. Last month the BoE said it would probably have to raise interest rates slightly more than it had previously planned, thanks largely to strong global growth.
A separate report on Monday from Hadrian's Wall Capital, a special debt adviser company, showed a further 25 basis-point rise in rates to 0.75 percent would hurt smaller companies most because they lack access to fixed-rate credit.
(Reporting by Andy Bruce)