Tags: Shock | UK | Output | Fall | Raises | Rate | Hike

Shock UK Output Fall Raises Rate Hike Doubts

Wednesday, 06 Apr 2011 10:44 AM

British industrial output fell in February, confounding analysts' forecasts for a rise on the back of a big monthly decline in oil and gas extraction due to maintenance work.

The data also showed manufacturing output stagnating and raised doubts both about the underlying strength of Britain's recovery and the case for an imminent rise in Bank of England interest rates.

The Office for National Statistics said that industrial output contracted by 1.2 percent in February after downwardly revised growth of 0.3 percent in January.

Economists had forecast a 0.4 percent increase in industrial output over the month, and this was the biggest fall since August 2009.

Sterling fell half a cent versus the dollar and gilt prices rose as the figures tempered expectations for a May rate rise, which had been boosted by strong March services data on Tuesday.

"The fact that manufacturing output was flat means any rate hike expectations for tomorrow, or even May, are most likely dead in the water," said Daiwa economist Hetal Mehta.

Other economists cautioned that the data was volatile, and may not prove decisive for the BoE.


The narrower measure of factory output — which does not include utilities or oil and gas extraction — was also worse than forecast and stalled in February, after January's downwardly revised growth of 0.9 percent.

Year-on-year, industrial output growth slowed to 2.4 percent, its weakest since July 2010.

Manufacturing output had been one of the few bright spots in Britain's economy, benefiting from a weak pound and strengthening demand from other countries.

Separate figures from the ONS on Wednesday showed that profitability in the sector reached its highest level since Q1 2008 in the final three months of 2010.

Manufacturing PMI surveys in January and February had suggested a continuation of this strong trend, with the sector was growing at its fastest pace in at least 16 years, though the survey showed some weakness in March.

The ONS said that oil and gas extraction fell by 7.8 percent due to maintenance work and production slowdowns at some sites, its biggest drop since August 2009.

"Although this happens each year and as such is a seasonal effect, production has decreased more between January and February 2011 than it had done between the same period i n previous years," the ONS said.

Within manufacturing, there were big falls in production of chemicals and in the 'other manufacturing' category, which includes recycling and making furniture.

The government and Bank of England are relying on strong export-driven growth in manufacturing in 2011 to fill the gap created by cuts in government spending and belt-tightening by consumers.

© 2015 Thomson/Reuters. All rights reserved.

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