Factory production slips back after rise

The recent recovery of the manufacturing sector took a knock today after figures showed a lacklustre start to the second quarter of 2010.

Official figures revealed output dropped 0.4% in April, offsetting gains a month earlier when production jumped 2.2% in the best showing for eight years.

Economists said the latest figures from the Office for National Statistics (ONS) were not cause for alarm as manufacturing output was still up 2.5% on a quarter-on-quarter basis.

Hetal Mehta, senior economic adviser to the Ernst & Young ITEM Club, said there was often volatility in the monthly data, adding that the sector was being supported by a turn in the stock cycle as customers rebuilt inventories.

"In addition, with the pound remaining weak and therefore continuing to boost UK competitiveness, we expect a healthy recovery in manufacturing as the sector ramps up production to meet export orders," she said.

The wider measure of industrial production, which includes mining and quarrying and electricity, gas and water supply, also fell by 0.4% in April, although the figure was 2.1% higher, quarter-on-quarter.

The recent strength in the industrial sector has helped put the UK's economic recovery on a firmer footing, with GDP figures for the first quarter upgraded to 0.3% on the back of March's production growth.

In separate figures, the ONS said factory gate prices rose by 0.3% on a month earlier in May, causing the year-on-year increase to slip to 5.7%. Input prices were down 0.6% in the month in reaction to a fall back in oil prices.

Howard Archer, UK economist at IHS Global Insight, said: "Manufacturers do appear in recent months to have been taking advantage of improved activity to push through some price increases and support their margins in the face of recent markedly higher input costs.

"May's reduced increase in producer prices suggests that they may be starting to find it more difficult to do this, which is what we would expect to be the case given substantial excess capacity."