UK industrial output stalls

City A.M. Reporter
British industrial output suffered a shock fall in February after a big monthly decline in oil and gas extraction due to maintenance work, official data showed.

The figures point to a less strong rebound in broader economic output during the first three months of 2011, which may discourage the Bank of England from raising interest rates at t he start of next month, especially as factory output stagnated too.

The Office for National Statistics said that industrial output contracted by 1.2 per cent in February after downwardly revised growth of 0.3 per cent in January. Economists had forecast a 0.4 per cent increase in industrial output over the month, and this was the biggest fall since August 2009.

The narrower measure of manufacturing output – which does not include utilities or oil and gas extraction – was also worse than forecast and stagnated in February, after January's downwardly revised growth of 0.9 per cent.

Year-on-year, industrial output growth slowed to 2.4 percent, its weakest since July 2010.

Manufacturing output had been one of the few bright spots in Britain's economy, benefiting from a weak pound and strengthening demand from other countries.

Manufacturing PMI surveys in January and February suggested the sector was growing at its fastest pace in at least 16 years, though the index weakened in March.

The ONS said that oil and gas extraction fell by 7.8 per cent, its biggest drop since August 2009.

Within manufacturing, there were big falls in production of chemicals and in the 'other manufacturing' category, which includes recycling and making furniture.

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 belt-tightening by consumers.

David Kern, chief economist at the British Chambers of Commerce (BCC), said: “These figures were disappointing and worse than expected. Manufacturing was flat over the month while wider industrial production showed a decline.

The data supports our assessment that although the UK economy has returned to positive growth in the first quarter of 2011, the recovery is still fragile and faces many obstacles over the coming months.

“British business accepts the need to persevere with the deficit-cutting programme which aims to stabilise our public finances. But in order to succeed, everything must be done to enable the private sector to drive the recovery, export and create new jobs.

“The Government must take action and implement a strategy to enhance and support growth. On its part, the MPC should postpone interest rate increases until the recovery is more secure.