UK industrial output shows biggest jump in eight years

Official figures released just weeks ago may have greatly understated the pace of economic recovery in the first months of this year.

The Office for National Statistics said yesterday that manufacturing production rose in March by 2.3 per cent on the previous month, following a 1.4 per cent gain in February. Industrial production as a whole, taking into account mining, gas and electricity output, was up 2 per cent.

The surprisingly high figures prompted economists at the National Institute of Economic and Social Research to predict the ONS's first estimate for first-quarter GDP growth of 0.2 per cent will be upgraded. The think-tank itself yesterday estimated that the economy grew 0.5 per cent between February and April.

The latest figures also support evidence from surveys by the Chartered Institute of Purchasing and Supply and others that exports are picking up. Capital goods output, much of which goes to meet the demand in emerging markets, was up 6 per cent on the first quarter of last year. That might also suggest that the disastrous decline in investment in the UK may be coming to a halt. The 25 per cent fall in sterling since its 2007 peak seems at last to be turning into tangible results for manufacturers.

There may also be a disproportionate boost to output coming from wholesalers starting to place orders to rebuild stock. The ONS had assumed that production rose by 0.7 per cent in the first quarter, with activity depressed by bad weather; in reality there was a 1.2 per cent rise.

Most observers were buoyed by the news, which comes as the financial crisis in the eurozone – the UK's largest export market by far – shows signs of resolution. Lee Hopley, chief economist at the Engineering Employers' Federation, said: "Whilst manufacturing and exports are now providing the foundations for a sustained recovery and a better balanced economy, we can't take this for granted. A stable government with a credible plan to repair the public finances is needed both to reassure financial markets and underpin a sustainable recovery."

However, other voices poured doubt on whether Britain's emaciated industrial sector – down to less than one-fifth of the total economy – can support robust growth. Pointing to relatively weak recent data on retail sales and on business sentiment in the wider services sector, Jonathan Loynes of Capital Economics cautioned: "Industry has a lot of ground to make up after the extraordinarily deep recession in the sector – production is still down by over 10 per cent from its peak back in 2007. It is far from clear that even continued rapid growth in industry can drive a strong recovery in the overall economy."