Surprise rise in factory output

A surprise jump in factory output today boosted hopes of a trading revival within Britain's under-pressure manufacturing sector.

The Office for National Statistics (ONS) said manufacturing output rose by 1% between November and December, much better than City forecasts for a 0.2% rise.

While the sector still contracted in the final quarter of 2011, the performance in December builds on other recent surveys that have suggested trading conditions and confidence are slowly improving.

There was also encouragement in separate ONS figures revealing the UK trade deficit posted a sharp improvement in December, narrowing to £7.1 billion from £8.9 billion a month earlier and more than £10 billion in September. It was also the narrowest deficit since last April.

Alan Clarke, an economist at Scotiabank, said: "The fact that net trade is improving at a time when overseas demand was most shaky is a great result. The challenge is maintaining the improvement and it will be a challenge."

The UK economy contracted by a provisional 0.2% in the fourth quarter of 2011 and is in danger of confirming recession with a further fall this quarter.

But closely-watched purchasing managers' surveys for manufacturing, services and construction have fuelled hopes that the decline at the end of last year will still prove to be a one-off.

The improved manufacturing performance in December meant overall industrial production was 0.5% higher on the previous month, despite the mild weather having an impact on output in the utilities sector.

Gas supply fell 14% compared with a year earlier, which the ONS also blamed on reduced demand for gas in the generation of electricity.

The Treasury welcomed today's figures and said it "showed signs of an economy rebalancing".

PA