Dip in manufacturing output casts new doubt over hopes of a British recovery


A shock blow for Britain's manufacturers yesterday set back hopes of the UK pulling out of recession in the current quarter and heightened calls for more stimulus from the Bank of England.

Official figures showed manufacturing – accounting for 12 per cent of the overall economy – sliding 0.7 per cent during April, as the Chancellor George Osborne's "march of the makers" rallying cry was stymied by the deepening crisis in the eurozone.

Experts warned of worse news on the way after purchasing manager surveys signalled the biggest slump in manufacturing since the collapse of Lehman Brothers last month.

"Given that the eurozone crisis has intensified since April and recent manufacturing surveys have been very weak, it seems likely the industrial sector will remain a drag on overall GDP (gross domestic product) growth for some time to come," Samuel Tombs, an economist at Capital Economics, warned.

The extra day's holiday for the Queen's Diamond Jubilee is already set to knock 0.5 per cent off the economy during the current quarter.

It was only April's dire weather – the wettest on record and the coldest since 1989 – which saved Britain's industrial sector from dragging down the economy over the month, the figures showed. Data from the Office for National Statistics showed energy supply up 13.6 per cent over the month as the cold weather encouraged households to crank up the heating.

This was enough to leave the broader measure of industrial production – which includes mining and quarrying and utilities – unchanged over the month.

The Bank of England decided against pumping more money into the economy last week. Threadneedle Street has spent £325bn so far.

However, policy dove Adam Posen, a member of the Bank's rate-setting Monetary Policy Committee (MPC), has called for it to do more by buying up private-sector debt as well as government gilts through quantitative easing (QE).

Investec's chief economist Philip Shaw said: "MPC members will no doubt be giving serious thought to sanctioning more QE at some stage over the next couple of months."

The manufacturing figures showed a 6 per cent slide in output from pharmaceutical firms doing the biggest damage over the month, despite a boost from computer and electronics makers.

Barclays Capital's Blerina Uruci warned: "The sustained weakness in industrial and manufacturing production to date suggests that the hoped-for manufacturing-driven recovery is not imminent.

"In fact, the rebalancing of the economy towards export-driven manufacturing production seems increasingly unlikely in the near term at least as doubts increase over the growth prospects in the UK's main trading partners."