Slowdown in industry to hamper wider UK recovery

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The Independent Online

As the Bank of England prepares to announce its latest decision on interest rates at noon today, the latest evidence suggests that the revival in the manufacturing industry may have slowed in recent weeks, lowering the chances of a spectacular bounce back from the snow-related problems that beset the economy at the end of last year.

Slow progress in construction and the service sector may also hold growth back, according to recent surveys of business confidence. The UK will, however, probably now avoid a "double dip" recession, and most economists expect the Bank to leave rates at 0.5 per cent today.

Manufacturing output was flat over February, the Office for National Statistics (ONS) said yesterday, while the much smaller energy sector plunged by 7.3 per cent on January's levels of output, though much of this was down to special seasonal factors. The ONS said maintenance work in the North Sea and an unusually mild February, depressing demand for gas and electricity for heating, had pushed the readings lower.

Overall, industrial production fell by 1.2 per cent, though the monthly figures are volatile. The rolling three monthly growth rate for industrial production was a relatively healthy 0.8 per cent. Industry accounts for 17 per cent of GDP.

The numbers prompted the National Institute for Economic and Social Research, an independent think-tank with a reputation for accurate forecasting, to issue a warning that growth in the first three months of this year will be barely enough to make up for the output lost during the bad weather last year. The institute said its estimate of first-quarter growth stands at 0.7 per cent.

Usually that would be seen as satisfactory, but, the institute added, "this strong figure for the first quarter of this year is flattered by the economic impact of the adverse weather in the final quarter of last year". It added: "The underlying growth rate is weak: the average rate of growth in the final quarter of last year and first quarter of this year was 0.1 per cent. With the state of the recovery uncertain we expect the MPC [Monetary Policy Committee] to maintain the current monetary policy stance at this week's meeting."

The MPC voted by six to three to keep rates on hold last month, with opinion actually split four ways on the options available. The ONS also said that the trend of rising profitability in the economy after the recession is continuing, with manufacturing returning to a double-digit rate of return for the first time since 2007.