Manufacturing falls again in December

Manufacturers suffered their first back-to-back fall in output for more than a year in December, sowing doubts over the prospect of further interest rate rises from the Bank of England's Monetary Policy Committee (MPC).

Official figures yesterday showed the sector contracted by 0.1 per cent on the month, confounding City forecasts of healthy expansion to make up for November's shock fall.

The slowdown contradicted recent bullish surveys that prompted the CBI to declare last month that the seven-year slump in manufacturing had ended. Geoffrey Dicks, the chief economist at Royal Bank of Scotland, said: "Warnings that the MPC is going to derail the recovery in manufacturing before it has even got going will become more strident."

The fall in output was driven by the electrical and optical sector, which contracted 1.5 per cent after November's 2.5 per cent fall, and chemicals sector, which fell by more than 1 per cent, the Office for National Statistics said. On a three-monthly basis, which irons out monthly fluctuations, there was a rise of 0.2 per cent from the previous three months.

Industrial production was another disappointment, falling by 0.1 per cent in December against City forecasts of a 0.7 per cent gain, leaving it 0.8 per cent weaker on a year earlier. However January's producer prices contained better news for the country's troubled manufacturers: raw material costs fell by 1 per cent, which the ONS attributed to sterling's rise against the dollar.

The National Institute for Economic and Social Research yesterday said it believed the UK economy outstripped its long-term average rate of growth, expanding by 0.8 per cent in the three months to January.