The UK was on the verge of an unprecedented triple-dip recession after a dire January for the nation’s struggling manufacturers.
Official figures revealed an alarming 1.5 per cent slide for the sector, the biggest slump in output since last June, when an extra day off for the Jubilee celebrations dented the economy.
The news sent the pound tumbling to fresh two-and-a-half-year lows against the dollar as traders bet on the Bank of England pumping billions more into the flatlining recovery.
It also deals a political blow to the Chancellor, George Osborne, a week ahead of a Budget in which he will almost certainly be forced to admit that the deficit is rising due to anaemic growth and the eurozone crisis. The trade union Unite called on him to produce a “game-changing Budget”. The Chancellor promised a manufacturing-led recovery in his 2011 Budget and “a Britain carried aloft by the march of the makers”. Unite assistant general secretary Tony Burke called this pledge“a work of fiction by a poor author”.
The deep decline for manufacturers dragged down Britain’s wider industrial base , which includes sectors such as mining and oil and gas extraction, down 1.2 per cent. As industrial production accounts for almost 16 per cent of overall output, a similar scale of decline in February and March would knock 0.2 percentage points off the wider economy.
Experts warned that the UK would need strong growth from services firms, which account for three-quarters of GDP, to prevent a slip back into technical recession after a poor start to the year for Britain’s building firms. The economy shrank 0.3 per cent between October and December and remains 3 per cent below its pre-recession peak at the beginning of 2008.
Ross Walker, an economist at Royal Bank of Scotland, said: “The slump in January leaves a decline in Q1 GDP looking more likely – at any rate, some combination of upward revisions/rebounds in industrial production alongside a revival in services output will be required to avert a slide back into a technical triple-dip recession.”
The worst decline was in the “other” manufacturing sector, including agricultural, forestry and metal-forming equipment, which saw three-quarters of the fall in industrial production.
As the Chartered Institute for Purchasing & Supply’s manufacturing snapshot slipped to its lowest for four months in February, ING Bank’s James Knightley said: “This sector is going to be a major drag on growth.”
The pound hit $1.4831 against the dollar, the lowest since June 2010, as speculation mounted over another round of quantitative easing from the Bank of England. Sterling also slid against the euro, to €1.1372.
The UK trade gap meanwhile shrank from £8.7bn to £8.2bn in January, but this was due to collapsing imports. The National Institute for Economic and Social Research predicted a 0.1 per cent decline for the economy in the three months to February.