Fall in UK manufacturing fans triple-dip fears

LONDON Tue Mar 12, 2013 10:37am GMT

LONDON (Reuters) - British manufacturing output fell in January at the fastest pace since June, reinforcing fears that the economy has tipped into its third recession since the 2008 financial crisis.

The unexpected decline in manufacturing will put further pressure on Chancellor George Osborne to come up with measures to revive growth in his budget statement next week.

The economy contracted in late 2012, endangering the government's plans to bring its spending in line with its earnings and leading to the loss of the UK's prized triple-A credit rating, and Britain will be back in recession if economic activity shrinks this quarter.

The pound fell to a 2-1/2 year low against the dollar and British government bonds rallied after the weak manufacturing data, which raised expectations for more stimulus from the Bank of England to shore up the economy.

"This is the penultimate nail in the coffin in terms of triple-dip - it's pretty much game over now," said Alan Clarke, economist at Scotiabank.

"Unless we have a stellar performance from the services sector, we're almost certainly in a triple dip."

Manufacturing output dropped 1.5 percent on the month, wiping out December's gain, the Office for National Statistics said, and bucking forecasts it would be flat. The statistics office noted there were few reports of any disruption from snowy weather at the end of January.

The wider reading of industrial output, which includes energy production and mining, fell 1.2 percent, more than erasing December's rise. The poor reading was partly due to a shutdown of a North Sea oil field, called Schiehallion, which typically accounts for 3-6 percent of Britain's oil production.

Weak industrial production was the main drag on Britain's economy in the final three months of 2012, shaving 0.3 percentage point off quarterly growth and contributing to that quarter's fall in GDP.

Another drop in GDP this quarter would put the economy in recession, defined as two consecutive quarters of negative quarterly GDP.

Data on the bigger services sector last week was more encouraging, showing the sector grew in February at its fastest pace in five months, according to a purchasing managers' survey.

However, UK data has been volatile and the manufacturing sector is showing persistent signs of weakness. A survey of purchasing managers revealed an unexpected contraction in the manufacturing sector in February.

Separate ONS data released on Tuesday showed a rare improvement in Britain's trade position.

The goods trade deficit shrank to 8.195 billion pounds in January from 8.738 billion pounds in December, driven by the biggest monthly drop in oil imports since August 2008. (Additional reporting by Li-mei Hoang; Editing by Susan Fenton)