Manufacturing returns to slump, but trade figures show surprise improvement

Manufacturing has sunk backinto recession, the Office for National Statistics (ONS) confirmed yesterday. Output fell by 0.8 per cent in the fourth quarter of 2011, the second consecutive quarter-on-quarter contraction of the sector.

The biggest declines were in metals, pharmaceuticals and electronic equipment. However, manufacturing output bounced back in December, increasing by1 per cent on the previous month.

And some sectors have bucked the declining trend. The ONS said the year-on-year increase in the manufacture of food, drink and tobacco is the strongest rise since records began in 1948. It added that the main driver of growth was alcoholic spirits, with output rising by 33.6 per cent in 2011. Most of this production was for export.

There was also some positive news from yesterday's ONS trade figures, which showed that the UK trade deficit in goods and services fell to £1.1bn in December, the lowest since April 2003. The deficit on seasonally adjusted trade in goods was £7.1bn in December, compared with an £8.9bn gap in November.

"The trade figures pleasantly surprised and have held up well over the past three months, given the headwinds that exporters have faced," said Nida Ali, economic adviser to the Ernst and Young ITEM Club. "With export volumes growing strongly and imports falling, net trade is likely to have made a strong contribution to Q4 GDP growth."