UK manufacturing production unexpectedly stalls, casts doubt on rebound

April 7, 2011 - 0:0

UK manufacturing growth unexpectedly stalled in February as declining production of goods from chemicals to plastics dented the industrial recovery.

Factory output was unchanged from January, when it rose 0.9 percent, the Office for National Statistics said on Wednesday in London. The median forecast of 26 economists in a Bloomberg News survey was a 0.6 percent increase. Overall industrial production unexpectedly slumped by 1.2 percent as oil output fell.
The report casts doubt on the strength of the economy’s rebound from a contraction in the fourth quarter at a time when higher raw-material costs threaten to squeeze manufacturers’ margins. The Bank of England may maintain its emergency stimulus program tomorrow to support the recovery during the government’s budget squeeze.
“We’ve been skeptical that the recovery in manufacturing can continue at the pace it has been,” said Philip Shaw, chief economist at Investec Securities in London. “It will still have a good year. This outturn probably reflects monthly volatility.”
The pound dropped more than 0.3 percent against the dollar after the report. It was down 0.1 percent on the day at $1.6274 as of 9:56 a.m. in London. The yield on the benchmark two-year government bond was down 3 basis points at 1.41 percent.
------------------Rubber, plastics
Out of 13 categories in manufacturing, four rose and nine declined in February from the previous month, the statistics office said. The biggest declines were in the category of other manufacturing, which includes furniture and recycling, and then chemicals and manmade fibers, and rubber and plastic products. From a year earlier, factory production rose 4.9 percent.
Smiths Group Plc (SMIN), a UK maker of airport scanners, said on March 23 that its business has “performed well against a tough but steadily improving economic environment.”
The drop in overall industrial output, which includes mining and quarrying and utilities, compared with the median forecast of 28 economists in a Bloomberg News survey for a 0.4 percent increase. Oil and gas extraction fell 7.8 percent on the month because of maintenance, while utilities output slipped 2.1 percent.
Manufacturing has strengthened from a year earlier in every one of the past 13 months, the statistics office said. The index of factory production held at 92.7, matching the highest since October 2008. The pound has dropped by about a fifth on a trade- weighted basis since the start of 2007, making British exports cheaper.
------------OECD forecasts The Organization for Economic Cooperation and Development said on Tuesday that the economic recovery among the world’s most advanced economies is gathering strength. UK gross-domestic- product growth will still cool to an annualized 1 percent in the second quarter from 3 percent in the first three months of the year, the Paris-based group said.
UK central bank officials voted 6-3 to keep interest rates on hold last month, and saw “merit in waiting” to assess the impact of rising oil prices on inflation during the fiscal squeeze. Chancellor of the Exchequer George Osborne last month stuck with a plan to eliminate the bulk of the record budget deficit by 2015.
The bank will leave its key rate at a record low of 0.5 percent tomorrow, according to all 57 economists in a Bloomberg News survey. They will also keep their bond-purchase plan at 200 billion pounds ($325 billion), according to a separate survey. The decision will be announced at noon in London.
(Source: Bloomberg)