April 11, 2018 / 8:35 AM / 12 days ago

UK factory output falls for first time in almost a year

LONDON (Reuters) - British manufacturing output fell unexpectedly in February, its first month-on-month drop in almost a year, adding to signs that the economy may have slowed in the first quarter.

Wednesday’s data, released along with figures for overseas trade, also showed another sharp drop in construction output, defying expectations for a small rebound after a severe downturn in January.

The pace of economic growth slowed slightly in 2017 as consumers suffered from higher inflation caused by a fall in sterling after June 2016’s Brexit vote.

Wednesday’s data mostly chimed with business surveys that suggest Britain’s economy cooled further in early 2018, weighed down in part by snow storms in late February and early March.

Manufacturing output, which was a bright spot last year thanks to the strong global economy, fell 0.2 percent month-on-month in February after stagnating in January, the Office for National Statistics (ONS) said.

That marked the first drop since March 2017 and was worse than the consensus in a Reuters poll of economists that pointed to a 0.2 percent rise.

British government bond futures briefly touched a session high after the data was released, while sterling slipped below $1.42.

The subdued figures will interest Bank of England officials who are widely expected to raise interest rates next month for only the second time since the 2008 financial crisis.

“This latest weak data shouldn’t be a deal breaker for the May rate hike, but I’m starting to get wary of how many times I’ve said that in recent weeks,” Scotiabank economist Alan Clarke said.

In February the central bank raised its growth forecasts for Britain due to the improving global economy and said interest rates were likely to rise somewhat faster and to a slightly greater extent than it had expected in late 2017.

The National Institute of Economic and Social Research said Britain’s economy looked on course for quarterly growth of just 0.2 percent in the three months of 2018, half its rate at the end of 2017.

The EEF manufacturing association said February’s dip in manufacturing output looked “more like a temporary wobble than a turn for the worse”.

Manufacturing output was 2.5 percent higher than its level in February 2017, again less than the 3.3 percent Reuters poll consensus, the ONS said.

Overall industrial output, which combines manufacturing and energy production, rose 0.1 percent in February, compared with a 1.3 percent expansion in January and weaker than the 0.4 percent consensus in the Reuters poll.

Industrial output accounts for 14 percent of Britain’s overall economic output.

CONSTRUCTION SAGS AGAIN, TRADE DEFICIT NARROWS

Construction output in February dropped 1.6 percent month-on-month after a 3.1 percent plunge in January - confounding the consensus expectation for a 0.7 percent rebound.

There was some anecdotal evidence that heavy snow in late February had hurt construction output, although the effect was difficult to quantify, the ONS said.

Separate figures on Britain’s trade performance brought better news, however.

Britain’s goods trade deficit with the rest of the world narrowed to 10.203 billion pounds ($14.48 billion) in February from 12.228 billion pounds in January - the smallest gap since September and better than all forecasts in a Reuters poll which had pointed to a deficit of 11.95 billion pounds.

The fall reflected a sharp drop in imports rather than an improvement in exports, both in value and volume terms.

Marc Ostwald, a market strategist at ADM Investor Services, part of farm commodities company Archer Daniels Midland, said snow had disrupted truck drivers at ports on Britain’s west coast.

“There are days when ports do more loading or offloading, and so the impact on the trade balance depends on the days hit by the weather,” he said.

($1 = 0.7045 pounds)

FILE PHOTO: A worker attaches electrical wires to a component on the factory floor of PP Control and Automation near Cannock, Britain July 6, 2016. Picture taken July 6, 2016. REUTERS/Phil Noble

Additional reporting by David Milliken, Editing by Raissa Kasolowsky and Hugh Lawson

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