Industrial output rises less than expected

City A.M. Reporter
Industrial output rose much less than expected in March, official data showed, dousing hopes that the economy may have fared better than initially reported in the first three months of this year.

The Office for National Statistics said industrial output rose 0.3 in March after a 1.2 per cent fall, less than half the 0.8 percent gain forecast by economists.

The ONS said that maintenance work on oil and gas fields had continued into March, limiting the bounce back from a sharp fall in the previous month.

The narrower measure of manufacturing output – which does not include utilities or oil and gas extraction - also rose less than expected in March, by 0.2 per cent, after a flat reading in February.

The pound fell against the dollar and the euro and interest rate futures rose as investors bet that lacklustre growth would encourage the Bank of England to leave interest rates at their record low for some months yet.

The ONS said that the latest industrial production figures meant growth in the sector came in at just 0.2 percent in the first quarter of this year, compared with an estimate of 0.4 percent in the preliminary reading of GDP. However, it said the negative impact on the GDP figures would be minimal.

Nonetheless, the figures indicate that industrial activity is slowing from its heady pace last year and highlights the sluggish pace of Britain's economic recovery.

"It appears that manufacturing growth is moderating back to more 'normal' levels and looking ahead, the sector is likely to make a smaller contribution to GDP growth than in recent quarters," said Hetal Mehta, economist at Daiwa Capital Markets.

The ONS said that 7 of the 13 manufacturing sub-sectors recorded an increase in output in March, and 6 reported declines.

"With UK exports to non-EU countries languishing, British manufacturing is now at risk of backsliding on the real gains the industry has made over the last 18 months," said Mark Lee, head of manufacturing at Barclays Corporate.

The sectors posting the strongest growth between January and March were transport equipment, electrical and optical manufacturers, as well as producers of food, drink and tobacco.

Britain's manufacturing sector has been one of the few bright spots in the economy, benefiting from a past fall in the pound and robust demand from other countries.

However, recent surveys have indicated the sector may be running out of steam.

The government and Bank of England are relying on strong export-driven growth in manufacturing in 2011 to fill the gap created by cuts in government spending and likely belt-tightening by consumers.