Manufacturing slumps at fastest pace since 1981

By David Milliken and Matt Falloon

LONDON (Reuters) - Factory output slumped in November at its fastest annual pace since 1981, increasing the likelihood that the economy shrank sharply at the end of 2008 and faces a deep recession in 2009.

The Office for National Statistics said on Friday manufacturing output was 7.4 percent lower than a year earlier, its biggest fall since June 1981 when Britain was in the throes of an industrial meltdown that decimated its car industry and coal mines.

Production was down 2.9 percent in November alone, the biggest monthly fall since one-off plant closures for the Queen's jubilee in the summer of 2002, and more than four times the drop forecast by economists polled by Reuters.

Falls were driven by reductions in paper and printing, transport equipment and metal production.

Sterling and the top share index fell after the figures added to growing expectations that Britain faces a lengthy recession and that Bank of England interest rates, currently at 1.5 percent, could near zero soon.

The broader industrial output measure, which includes North Sea oil production and power generation as well as factory output, dropped 2.3 percent on the month for a 6.9 percent annual fall. That annual rate was the weakest since March 1981.

"These numbers are even worse than we expected and twice as bad as October," said Philip Shaw, chief economist at Investec.

"We had already revised our gross domestic product (GDP) forecast for the fourth quarter down to -1.4 percent and -2.0 percent for 2009. We may have to take another look at that and push the numbers lower."