Big fall in industrial production

UK industrial production suffered its biggest fall in 18 months in February, figures revealed today, fuelling uncertainty over the state of the economic recovery.

Industrial production, which includes sectors such as mining and energy supply, dropped 1.2% month-on-month in February, while manufacturing output was flat, the Office for National Statistics said.

The decline in industrial production was driven by a 7.8% fall in oil and gas extraction, due to maintenance work and slow-downs at some sites.

The figures follow a range of mixed economic data from different areas of the economy, including an upbeat survey on the services sector yesterday.

Today's weak figures will concern Chancellor George Osborne, who is relying on the private sector to pick up the expected slack in the economy as his £81 billion package of spending cuts starts to bite.

David Kern, chief economist at the British Chambers of Commerce (BCC), said today's ONS figures were disappointing and worse than expected.

He said: "The data supports our assessment that although the UK economy has returned to positive growth in the first quarter of 2011, the recovery is still fragile and faces many obstacles over the coming months.

"British business accepts the need to persevere with the deficit-cutting programme which aims to stabilise our public finances. But in order to succeed, everything must be done to enable the private sector to drive the recovery, export and create new jobs."

The figures also underpin the complicated situation faced by policymakers at the Bank of England, who are battling with soaring inflation and sluggish growth.

The Bank's Monetary Policy Committee (MPC) has suggested it is prepared to wait and see how well the economy has fared in the first three months of 2011 before it lifts interest rates.

But data have been mixed, with yesterday's Markit/CIPS Purchasing Managers' Index (PMI) survey revealing the powerhouse services sector grew at its fastest pace for more than a year.

The Bank's committee will confirm its monthly decision on interest rates tomorrow.

Howard Archer, UK economist at IHS Global Insight, said: "The dip in industrial production in February, and only flat manufacturing output, reinforces the case for the Bank of England to keep interest rates unchanged on Thursday as major uncertainties and ongoing significant concerns over the growth outlook, particularly consumer spending, counter well-above-target and rising inflation."