Manufacturing output falls by 1 per cent

Hopes over the recovery of the UK's manufacturing sector were rocked today by a surprise contraction in activity during February.

The Office for National Statistics (ONS) said output in manufacturing fell 1% between January and February, significantly worse than the City's expectations that it would be flat, and its biggest drop since April.

To add to the gloom, manufacturing figures for January were revised down to show the sector contracted by 0.3%, compared with a previous estimate of 0.1% and dashing hopes the sector returned to growth in 2012.

The weak manufacturing data flies in the face of recent bullish surveys and dents recent hopes the UK can dodge another recession after its 0.3% contraction at the end of 2011.

Samuel Tombs, an analyst at Capital Economics, described the latest manufacturing figures as "terrible" and said they threatened hopes for a decent increase in first quarter GDP.

He added: "Hopes that manufacturing could help to drive a strong and sustained recovery in the economy are rapidly fading."

In industrial output, which includes the mining and quarrying sectors, output rose 0.4% between January and February although economists warned that the figure is likely to decline again in March when warm weather is expected to have hit production.

Manufacturing output has now fallen in four of the last five months for which data is available.

The sector declined by 1.4% in February when compared to the same month a year ago, which is its biggest fall for more than two years.

Today's figures will come as a blow to the Government, which hopes that manufacturers will help lead a 'rebalancing' in the economy and compensate for its public sector cuts.

However, the sector has been hit by weak demand at home where consumers are being squeezed by the rising cost of living and high unemployment, and the eurozone debt crisis, which has affected key export markets.

Andrew Johnson, senior economist at manufacturers' organisation EEF, said: "Today's data is a stark reminder that despite the positive signs in the last couple of months, the sector is still being buffeted by uncertainty and weakness in key markets.

"There is nothing to change our view that 2012 will remain a challenging year."

Mr Tombs added that the overall rise in industrial production in February was driven by hikes in energy output and oil and gas extraction amid the colder weather but is likely to be reversed by March's heatwave.

He believes overall industrial production is likely to fall in the first quarter of 2012, albeit at a slower rate than in the final quarter of 2011, although he thinks the economy as a whole should "probably" avoid a return to recession.

PA