Weak factory data pushes pound lower

STERLING sank further yesterday after unexpectedly weak industrial production data dashed hopes that the British economy would be able to build on its return to growth in the fourth quarter of last year.

The pound – which had been battered last week by a combination of political worries, weak data, and the Pru’s acquisition of AIA – fell to as low as £1.48 after official data revealed that manufacturing ouput contracted by 0.9 per cent in Janaury, its biggest monthly drop since August.

The official data from the Office for National Statistics (ONS) came in well below analyst expectations for a rise of 0.3 per cent. The wider industrial production measure slipped by 0.4 per cent on the month but actually rose 0.2 per cent on January 2009.

The ONS said that the industrial data was probably affected by January’s cold snap. However, Citi’s Michael Saunders was sceptical, pointing out that manufacturing output managed to rise 0.8 per cent and 0.9 per cent in January in France and Germany respectively, despite these countries also suffering unusually cold weather and persistent snow.

Economists also warned that the exceptionally poor January industrial production data could mean an economic stagnation for the first quarter of this year or even a slowdown.

Even solid monthly rises in both February and March would leave a quarterly gain similar to that seen in the fourth quarter. Accordingly, hopes that the industrial sector would drive a decent acceleration in overall GDP growth seem unlikely to be met in the near-term.

David Kern at the British Chambers of Commerce (BCC). said: “There is now a serious possibility that GDP in the first quarter of this year will show a slowdown compared with the last quarter of 2009. A manufacturing recovery is crucial to secure the rebalancing of the UK economy towards exports and investment.”