Manufacturers take first small steps out of recession

Green Shoots: UK industry reports rise in output, while Europe's biggest economy cuts jobless toll
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The Independent Online

UK manufacturing took its first tentative steps out of recession in February, recording its first month of growth since last summer, figures showed yesterday.

UK manufacturing took its first tentative steps out of recession in February, recording its first month of growth since last summer, figures showed yesterday.

Firms' output rose by 0.4 per cent, much higher than had been forecast, on the back of a sharp rise in chemicals and, in particular, pharmaceuticals.

This was the first rise since August of last year but it still left the sector 5.8 per cent lower than it was a year ago.

"The manufacturing sector remains in a precarious state but there are now signs of a more favourable climate in the months ahead," Ross Walker, a UK economist at Royal Bank of Scotland, said.

The hopeful mood was compounded by the latest estimate of economic growth from the National Institute for Economic and Social Research, an independent think-tank.

The institute said growth for the three months to March rose to 0.2 per cent from February's 0.1 per cent.

Martin Weale, its director, said the economy had returned to growth after stagnation that lasted from last September to January this year. "We had a bit of a double-dip in growth, although not a recession, and we are now pulling out of that," he said.

The manufacturing figures showed that three-quarters of the monthly rise was driven by the chemicals sector, which grew by 2.4 per cent.

National Statistics, the government office, said the main factor was continued strong output at the UK's drug factories, where output rose more than 7 per cent.

It said this was due to extra production of a "handful" of products but said it was prevented from giving more details by commercial confidentiality.

However, it said these were not weather-related sales, involved high exports to the USA, and is likely to continue at least into March.

Seven of the 13 sub-sectors within manufacturing recorded a rise. This included the beleaguered sector that includes mobile phones and hi-tech equipment, which rose 0.5 per cent but is still 25 per cent down on a year ago.

Hopes that a fragile recovery was under way were underlined by official trade data that showed the UK's deficit with the rest of the world widened to £2.62bn in February from £2.5bn, less than had been expected.

The trade deficit with the EU narrowed sharply in £554m from £825m, while the deficit with non-EU countries widened to £2.0bn from £1.66bn. NS said the trade gap was on a narrowing trend.

However, export volumes were down by 2.5 per cent, unwinding January's 2 per cent rise, and driven by a 12 per cent slump in sales to the US.

Signs of a recovery for manufacturing, coupled with a continued consumer boom, are likely to encourage speculation of an imminent hike in interest rates.

But Simon Rubinsohn, chief economist at City brokers Gerrard, said the contents of next week's Budget would have a greater impact on the MPC's thinking."Any increase in the tax burden on households at a time when higher oil prices threaten to erode purchasing power is likely to be sufficient to encourage the MPC to give consumers a bit more time to moderate their spending," he said.