By BLOOMBERG

LONDON • Euro-area manufacturing expanded at the weakest pace in eight months in March as factories delayed production due to increasing capacity constraints.

A Purchasing Managers’ Index (PMI) dropped to 56.6 from 58.6 — in line with a previous flash estimate — IHS Markit said yesterday. Activity slowed across countries and industries in the region, but remained indicative of solid growth nonetheless, it said.

“We should not be too worried by the fall in the PMI as some moderation in the pace of growth from the surge seen at the turn of the year was inevitable,” said Chris Williamson, chief business economist at the London-based company. “However, the fact that business optimism about the coming year has slipped to a 15-month low suggests there are other factors that are now hitting factory order books.”

IHS Markit said that while supply-chain bottlenecks and bad weather were stymieing production, in some cases demand is being capped by higher prices and the euro’s appreciation.

Such trends could weigh on the region’s upswing as strong growth has yet to translate into sustainably higher inflation.

Policymakers at the European Central Bank are debating when to wind down ext raordinary monetary stimulus, and some officials have cautioned that a stronger currency, trade risks and higher than expected slack might be reasons to go slow.

Despite softer output growth in manufacturing, IHS Markit said the sector is still likely to make a substantial contribution to economic expansion in the first quarter (1Q).

The overall pace of growth “remains robust by historical standards”, Williamson said.

Meanwhile, UK manufacturing maintained its pace of expansion in March, though there was a sharp slowdown in new orders.

IHS Markit said its monthly PMI was at 55.1, up from 55 in February and better than economists had forecast. The figure is also encouraging given the disruption from the “Beast from the East” storm during the month.

The report had positive and negative elements, with output and employment up, and companies reporting a “strongly positive outlook”. But new orders rose the least since June and backlogs of work fell for a third straight month.

IHS Markit said the average PMI reading in the 1Q was the weakest in a year and is consistent with manufacturing growth of about 0.5%. That compares to a 1.3% surge in the final three months of 2017.

“Manufacturing has entered a softer growth phase,” said Rob Dobson, director at IHS Markit. “They key question is whether growth can now be sustained, albeit at a lower level, in the coming months. On that front the news is generally positive.”