Sector slump fuels fears of double-dip recession

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Flagging manufacturers wreaked havoc with the economy during the final quarter of 2011 as the worst slump for nearly three years put Britain on course for a double-dip recession, official estimates revealed yesterday.

Manufacturing, which accounts for 10 per cent of output, fell 0.9 per cent between October and December as the overall economy shrank by a worse-than-feared 0.2 per cent, the Office for National Statistics said.

With the UK's powerhouse services sector also grinding to a halt, the worst quarter for manufacturers since the beginning of 2009 was enough to drag the wider economy into the red as demand fell at home and turmoil in Europe hit exports. Another slide in the current quarter would put the UK officially in a double-dip recession.

The milder start to the winter also hit wider industrial production as households kept the heating off, leading to lower gas demand, the ONS said. Construction also fell 0.5 per cent.

The CBI's latest Industrial Trends survey fuelled hopes that the manufacturing sector could stem the decline as firms signalled expectations of a slight rise in exports and modest growth during the next three months.

The latest figures position the economy still 3.8 per cent below its pre-recession peak, leaving Britain lagging behind all developed nations except Japan and Italy in the recovery stakes.

The lingering concern over UK prospects leaves the Bank of England odds-on for another burst of quantitative easing to pump cash into the economy. Minutes yesterday revealed that rate-setters voted unanimously to hold fire on further action this month, but there were hints of a split over how much more money the Bank could print.