LDN - Business

UK factory output falls for first time in almost a year

[April 11, 2018] By Andy Bruce and Alistair Smout

LONDON (Reuters) - British manufacturing output fell unexpectedly in February, its first month-on-month drop in almost a year, adding to signs the economy may have slowed in the first quarter.

The official data, released on Wednesday along with figures for overseas trade, also showed another sharp drop in construction output, defying expectations for a small rebound after a severe downturn in January.

The pace of economic growth slowed slightly in 2017 as consumers suffered from higher inflation caused by a fall in sterling after June 2016's Brexit vote.

Overall, Wednesday's data mostly chimed with business surveys that suggest Britain's economy cooled further in early 2018, weighed down in part by snow storms in late February and early March.

Manufacturing output, which was a bright spot last year thanks to the strong global economy, fell 0.2 percent month-on-month in February after stagnating in January, the Office for National Statistics (ONS) said.

That marked the first drop since March 2017 and was worse than the consensus in a Reuters poll of economists that pointed to a 0.2 percent rise.

British government bond futures briefly touched a session high after the data was released, while sterling slipped below $1.42.

"The modest stimulus to growth from sterling's 2016 depreciation has begun to fade, while the global trade upswing has lost some momentum too," Samuel Tombs, an economist at consultancy Pantheon Macroeconomics, said.

Tombs said the figures looked consistent with first-quarter economic growth of around 0.2 percent quarter-on-quarter - weaker than the Bank of England's forecast of 0.3 percent and the 0.4 percent recorded in the last three months of 2017.

But the EEF manufacturing association said February's dip in manufacturing output looked "more like a temporary wobble than a turn for the worse".

The subdued figures will interest Bank of England officials who are widely expected to raise interest rates next month for only the second time since the 2008 financial crisis.

In February the central bank raised its growth forecasts for Britain due to the improving global economy and said interest rates were likely to rise somewhat faster and to a slightly greater extent than it had expected in late 2017.

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Robotic arms load biscuits onto pallets on the production line of Pladis' McVities factory in London Britain, September 19, 2017. REUTERS/Peter Nicholls.

Manufacturing output was 2.5 percent higher than its level in February 2017, again less than the 3.3 percent Reuters poll consensus, the ONS said.

Overall industrial output, which combines manufacturing and energy production, rose 0.1 percent in February, compared with a 1.3 percent expansion in January and weaker than the 0.4 percent consensus in the Reuters poll.

Industrial output accounts for 14 percent of Britain's overall economic output.

CONSTRUCTION SAGS AGAIN, TRADE DEFICIT NARROWS

Construction output in February dropped 1.6 percent month-on-month after a 3.1 percent plunge in January - confounding the consensus expectation for a 0.7 percent rebound.

There was some anecdotal evidence that heavy snow in late February had hurt construction output, although the effect was difficult to quantify, the ONS said.

Separate figures on Britain's trade performance brought better news, however.

Britain's goods trade deficit with the rest of the world narrowed to 10.203 billion pounds ($14.48 billion) in February from 12.228 billion pounds in January - the smallest gap since September and better than all forecasts in a Reuters poll which had pointed to a deficit of 11.95 billion pounds.

The fall reflected a sharp drop in imports rather than an improvement in exports, both in value and volume terms.

($1 = 0.7045 pounds)

(Editing by Raissa Kasolowsky)

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