Shock drop in UK’s industry knocks pound

Julian Harris
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STERLING was hit yesterday by a report showing a shock fall in British industrial production.

Industrial production fell by 1.2 per cent in February compared to January – the largest fall since August 2009, the Office for National Statistics (ONS) said.

The pound plummeted by over half a cent against the dollar in morning trading, as the chances of an earlier interest rate rise appeared to recede, yet eventually recovered to gain on the day.

However, the surprise data, which appears out of kilter with recent business surveys, was questioned by some economists.

The data showed the manufacturing sector stagnating in February, contrasting with a record high for the month according to a recent purchasing managers’ index (PMI).

“We are puzzled by the weakness of the data relative to the PMI survey, and believe that underlying growth momentum is stronger than these manufacturing data indicate,” said Chris Williamson of Markit, which compiles the PMI data.

The surprise drop in the wider industrial figure was largely attributed to a 9.5 per cent fall in mining and quarrying, due to reduced oil and gas extraction. While a decline at this time of year is a regular seasonal effect, the drop was greater than usually witnessed, the ONS said.

“Yet that component of industrial production is typically volatile from month to month. February’s drop in industrial production is not quite as bad as it first looks,” said Samuel Tombs of Capital Economics.

A relatively mild February was another one-off factor behind the figures, as gas supply output fell by 9.2 per cent, and the energy sector as a whole was down 2.1 per cent month-on-month.

According to the underlying trend, production was up 0.8 per cent in the three months to February, compared to the previous three months. Manufacturing on the quarter-by-quarter measure was up 1.1 per cent, according to the figures.