Economy hit by job losses and manufacturing decline

The outlook for the UK business sector suffered a triple blow yesterday as a tyre maker announced it was shutting a factory with more than 600 job losses, manufacturing output fell and growth in services slowed.

The pound hit a 15-month low against the euro as traders bet the Bank of England would be forced to cut interest rates by the end of the year.

Goodyear Dunlop, the US tyre giant, is to end production at its plant in Washington, Tyne and Wear, with the loss of 585 jobs. A further 39 jobs are at risk at its Wolverhampton site. It said it had been unable to produce tyres at a competitive cost. Richard Johnson, its UK managing director, said: "The market for the type of tyres made in Washington is very competitive and is increasingly dominated by low-cost suppliers from Eastern Europe and the Far East."

The news came as the Office for National Statistics said factory output fell 0.2 per cent for the second month running in February, wrecking hopes of a 0.2 per cent rise. The ONS said the fall was driven by firms cutting production of paints - closely connected to the health of DIY - and drugs, which hit an all-time record in January. Computer makers reported a 5.5 per cent slump in output.

Together with a 1.3 per cent drop in oil, gas and coal production, total industrial production fell by 0.3 per cent.

Meanwhile, a snapshot survey of the services sector showed growth in both output and new orders slowed last month. The Chartered Institute of Purchasing and Supply said its index eased to 57.4 from 58.9 in February, still well above the 50 threshold that separates growth from contraction.

Economists are unanimous that the Bank's Monetary Policy Committee will leave rates unchanged today but are increasingly looking for a cut this year.