LONDON (Reuters) - Factory output grew faster than expected in February and at its strongest annual rate in more than a year, data showed on Wednesday, suggesting the sector is holding up in the wake of the credit crunch.
The Office for National Statistics said manufacturing output rose 0.4 percent on the month in February, above forecasts for a 0.1 percent gain. On the year, factory output rose 1.9 percent — the strongest annual rate since December 2006.
Broader industrial output rose 0.3 percent on the month and 1.3 percent on the year in February, also beating analyst forecasts and posting the strongest annual rise since November 2006.
Sterling rose and interest rate futures fell after the stronger than expected figures as investors trimmed bets on how far interest rates may fall this year.
“It’s very encouraging,” said Philip Shaw, an economist at Investec. “The last two months have shown robust growth in the sector, helped by the weakness of sterling. It will provide some solace to those worried by the economic outlook.”
The Bank of England is expected to cut official borrowing costs by 25 basis points to 5 percent on Thursday, but opinion is divided on how low rates can fall as policymakers juggle a weakening economy against simmering price pressures.
Economists expect the wider economy to cool this year as the credit squeeze spreads out from the hard-hit financial sector and as companies struggle with rising raw materials costs.
However, a weaker pound is seen increasing demand for British goods abroad and lending a prop to the manufacturing sector.
The ONS said the rise in factory output in February was driven by gains in the food, drink and tobacco, chemicals and metals sectors.
Reporting by Matt Falloon and Raissa Kasolowsky, editing by Mike Peacock