Industry slump deepens as prices fall for first time

MANUFACTURING has entered its longest period of sustained decline since the early 1980s, according to official figures out yesterday, reigniting fears of an economy-wide recession in the first half of this year.

The latest Office for National Statistics data were far worse than expected and vindicated last week's surprise decision by the Bank of England to cut UK interest rates by 0.5 percentage points, analysts said.

As well as revealing sharp falls in manufacturing activity, the ONS figures provided further evidence of deflation in the sector. Manufacturing output prices fell in December for the first time on record, as weak consumer demand squeezed margins.

John Redwood, the Conservative spokesman for trade and industry, warned that manufacturing was "lurching towards disaster". The Government, however, defended its economic track record, saying it was steering a course of stability through difficult times.

Ken Wattret, an economist at Paribas, said: "The official production data is belatedly catching up with business surveys, which have been screaming recession for months now".

According to the ONS, manufacturing output dropped 0.6 per cent in December, compared to expectations of a 0.2 per cent drop. Output in the sector has now fallen for five successive months, the longest period of successive monthly declines since the early 1980s.

During the last quarter of 1998, the manufacturing sector shrunk by 1.3 per cent, its sharpest quarterly contraction since early 1991. This was the second consecutive quarter of manufacturing decline, the ONS said, meaning that the sector is now officially in recession.

Industrial production, which includes mining and energy production as well as manufacturing, fell by 0.8 per cent in December. Weakening consumer demand has hit manufacturing prices, with the sector now firmly in the grip of deflation, economists said.

In December, producer output prices fell by 0.1 per cent, the first monthly fall since records began in 1958. Manufacturing output prices remained unchanged in January, the ONS said. Input prices rose in January by 0.5 per cent following a recovery in crude oil prices.

City analysts warned the weak data were likely to prompt downward revisions to last year's official growth figures, and could mean that growth turns negative in the first quarter of 1999. Mr Wattret said: "It's quite possible we could have negative growth. The manufacturing data tells us that the problems are deep-rooted."

There were encouraging signs elsewhere in the economy yesterday, with two separate surveys providing evidence of a revival of optimism.

The British Retail Consortium survey pointed to a bounceback in retail sales in January, with like-for-like sales up 2.5 per cent as heavy discounting tempted customers back to the shops.

The apparent contradiction between yesterday's upbeat BRC survey and last week's gloomy Confederation of British Industry survey could be down to differences in measurement, according to Pam Webber, BRC economist. The CBI survey is based on retail expectations, while the BRC survey measures cash through the till.

Meanwhile, the monthly Merrill Lynch/Gallup survey revealed an upturn in optimism among UK fund managers. One in three expect a stronger economy a year from now, compared with just 3 per cent back in September. Asset allocation is moving away from bonds and cash and back into equities, Merrill Lynch said.

Suggested Topics
PROMOTED VIDEO
News
Wayne’s estate faces a claim for alleged copyright breaches
John Wayne's heirs duke it out with university over use of the late film star's nickname
Arts and Entertainment
Celebrated children’s author Allan Ahlberg, best known for Each Peach Pear Plum
books
News
peopleIndian actress known as the 'Grand Old Lady of Bollywood' was 102
News
business
News
Mick Jagger performing at Glastonbury
people
Sport
Germany's Andre Greipel crosses the finish line to win the sixth stage of the Tour de France cycling race over 194 kilometers (120.5 miles) with start in Arras and finish in Reims, France
tour de franceGerman champion achieves sixth Tour stage win in Reims
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Extras
indybest
Life and Style
beautyBelgian fan lands L'Oreal campaign after being spotted at World Cup
News
people
Arts and Entertainment
Chocolat author Joanne Harris has spoken about the financial struggles most authors face
books
Arts and Entertainment
filmSir Ian McKellen will play retired detective in new film
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Technical Support Analyst (C++, Windows, Linux, Perl, Graduate)

£30000 per annum: Harrington Starr: A global leader in trading platforms and e...

Junior IT Consultant (SQL, Java, C++, Oracle, Graduate)

£28000 per annum: Harrington Starr: A fast growing consultancy to the financia...

Technical Support Analyst (Windows, Linux, Unix, Graduate)

£30000 per annum: Harrington Starr: Technical Support Analyst - Liverpool Stre...

Juniper Network Engineer - CCNP / JNCIP / JNCIS / Juniper

£65000 per annum: Harrington Starr: One of the world's largest privately owned...

Day In a Page

The true Gaza back-story that the Israelis aren’t telling this week

The true Gaza back-story that the Israelis aren’t telling this week

A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
A History of the First World War in 100 Moments: The German people demand an end to the fighting

A History of the First World War in 100 Moments

The German people demand an end to the fighting
New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

New play reveals what Oscar Wilde said at trials

For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
Can scientists save the world's sea life from

Can scientists save our sea life?

By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

Richard III review

Martin Freeman’s psychotic monarch is big on mockery but wanting in malice
Hollywood targets Asian audiences as US films enjoy record-breaking run at Chinese box office

Hollywood targets Asian audiences

The world's second biggest movie market is fast becoming the Hollywood studios' most crucial
Grindr founder Joel Simkhai: 'I've found love on my dating app - and my mum keeps trying to hook me up!'

Grindr founder Joel Simkhai: 'I've found love on my dating app'

Five years on from its launch and Grindr is the world's most popular dating app for gay men. Its founder Joel Simkhai answers his critics, describes his isolation as a child
Autocorrect has its uses but it can go rogue with embarrassing results - so is it time to ditch it?

Is it time to ditch autocorrect?

Matthew J X Malady persuaded friends to message manually instead, but failed to factor in fat fingers and drunk texting
10 best girls' summer dresses

Frock chick: 10 best girls' summer dresses

Get them ready for the holidays with these cool and pretty options 
Westminster’s dark secret: Adultery, homosexuality, sadomasochism and abuse of children were all seemingly lumped together

Westminster’s dark secret

Adultery, homosexuality, sadomasochism and abuse of children were all seemingly lumped together
A History of the First World War in 100 Moments: Dulce et decorum est - a life cut short for a poet whose work achieved immortality

A History of the First World War in 100 Moments

Dulce et decorum est: a life cut short for a poet whose work achieved immortality
Google tells popular music website to censor album cover art in 'sexually explicit content' ban

Naked censorship?

The strange case of Google, the music website and the nudity take-down requests
Howzat! 8 best cricket bats

Howzat! 8 best cricket bats

As England take on India at Trent Bridge, here is our pick of the high-performing bats to help you up your run-count this summer 
Brazil vs Germany World Cup 2014 comment: David Luiz falls from leader figure to symbol of national humiliation

David Luiz falls from leader figure to symbol of national humiliation

Captain appears to give up as shocking 7-1 World Cup semi-final defeat threatens ramifications in Brazil