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Natural fibres do not exactly shrink, they return to their natural size.During the manufacturing processes, the fibre gets stretched by the tension created by the machines.Wool and cotton are stretched during the spinning process which turns them into useable yarn. This is further stretched during the knitting or weaving process. When washed, the tension is released and the fibres return to their natural state.These days most natural fibres are 'pre-shrunk'. Wool is washed after spinning, so the tension is released. Cotton is washed after spinning and again after weaving (I think).Pre-shrunk woven fabrics can then go to the CMT (Cut, make & trim) stage without fear of further 'shrinkage'. I think in the case of wool, low tension knitting machines are used.