March 10, 2010 / 9:33 AM / 10 years ago

Factory output slumps in January

LONDON (Reuters) - Manufacturing output slumped in January at its sharpest monthly rate since last August, confounding expectations of growth and reversing December’s strong rise after icy weather dented production.

Employees work on cars on the Nissan production line at the company's factory in Washington, England in this March 20, 2009 file photo. REUTERS/Nigel Roddis

Wednesday’s official data brought fresh doubt about the strength of the economic recovery after figures on Tuesday showed the sharpest fall in exports for over three years, though they contrast with upbeat industry surveys, and some economists see a rebound in February or March.

The Office for National Statistics said manufacturing output fell 0.9 percent in January — well below analysts’ expectations for a rise of 0.3 percent and a complete reversal of December’s 0.9 percent rise.

“The figures are very disappointing. It is impossible to blame everything on the weather,” said Philip Shaw, economist at Investec.

“The only comforting feature is that all the surveys show the output trend to be positive, which gives us confidence that January’s official reading is a bit of a rogue number.”

There was anecdotal evidence that some firms had rushed production in December to avoid January’s rise in value-added tax, as well as reports of disruption from Britain’s harshest weather in more than 30 years, the ONS said.

Prime Minister Gordon Brown — whose Labour Party is just behind in opinion polls, weeks before a general election — said at a Thomson Reuters event that the recovery remained fragile, and that there were substantial risks ahead.

BAD NEWS FOR BUDGET

Sterling fell to its lowest in nearly a year on a trade-weighted basis, as investors worried that slow growth might undermine government plans for fiscal consolidation.

“At the very least, today’s data mark an inauspicious start to 2010,” said Colin Ellis, UK economist at Daiwa.

“The risk is that at least part of January’s weakness reflects the soft underbelly of the economic recovery, and is another signal that GDP growth will struggle to pick up to around 3 percent by the turn of the year, as the Bank of England expects.”

Britain came out of its deepest recession since World War Two in the fourth quarter of 2009 — when GDP grew 0.3 percent — but Wednesday’s data ends an unbroken string of four months of manufacturing expansion.

Manufacturing accounts for about 13 percent of British GDP, and output fell in 11 of 13 manufacturing subsectors, with machinery and food and drink production the only risers

But comparing output to a year ago, there is a more positive message as January’s 0.2 percent annual rise is the first growth since March 2008. The 1.0 percent growth between November and January was the strongest since March 2006.

The wider measure of industrial production, which includes utilities, mining and oil and gas extraction and makes up 17 percent of GDP, fell 0.4 percent on the month — also the biggest fall since last August and confounding expectations for a rise of 0.3 percent.

Editing by John Stonestreet and Patrick Graham

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