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.”
The only bright spot was a sharp fall in firms’ inventories, which Shaw said put a cap on how fast output could fall in coming months.
Nonetheless, bad news for manufacturing has continued since November, despite a fall in sterling making exports to the United States and the rest of Europe cheaper.
The Bank of England said on Thursday after it cut rates by 0.5 percentage points to a record low of 1.5 percent that weaker sterling should help provide support to economic activity this year, yet depressed global demand has limited any gains so far.
Japan’s Nissan, the most efficient car company in Britain, said on Thursday that it would lay off 1,200 workers in northeastern England because of sliding demand for its new cars — 80 percent of which are exported.
Business minister Peter Mandelson said on Friday the government was looking at ways to help car manufacturers but stressed that the industry had not demanded any bailouts.
“It may well be that we’ve got to see how the motor finance arms can be assisted in terms of their additional liquidity needs and that we’re going to be looking at in the coming weeks,” Mandelson told BBC radio.
ONS analysts declined to comment on how big an impact the figures would have on their preliminary estimate of GDP in the last three months of 2008, which is due on January 23. The British economy shrank by 0.6 percent in the third quarter of last year.
Separately, ONS data for producer price inflation for December came in higher than expected.
Output prices were unchanged on the month, compared to analysts’ expectations for a fall of 0.7 percent. That left prices up 4.7 percent on the year, the weakest since December 2007.
Input prices fell 2.0 percent in December, taking the annual rate down to 4.3 percent, the weakest since August 2007.
Policymakers expect price pressures to ease sharply this year as the global economic slowdown strips raw material producers of their pricing power.
Editing by Ron Askew