Manufacturing in freefall as output plunges

Published on Friday 9 January 2009 20:21

BRITAIN'S manufacturing sector would appear to be in freefall after official figures showed output falling at its fastest pace in nearly 30 years.

Yesterday's data, described by one economist as "breathtakingly awful", provides further evidence that the UK is heading for a deep recession.

The figures are also likely to reinforce expectations that interest rates, cut by half a percentage point to 1.5 per cent this week, will fall towards zero in the coming months.

The Office for National Statistics (ONS) said manufacturing activity slumped 2.9 per cent month-on-month in November, giving an annual rate of decline of 7.4 per cent.

Both figures were far worse than City expectations, with the annual drop the largest since June 1981 when there was a 7.6 per cent fall.

Output has now been in decline for nine consecutive months – the worst run since 1980.

Howard Archer, chief UK economist at forecasting body IHS Global Insight, said the weakness in manufacturing raised fears about the potential depth and length of the recession.

"The data for November is breathtakingly awful," he noted. "The manufacturing sector is being battered by depressed domestic demand, very weak activity in key export markets, very tight credit conditions and intense competition."

"We expect GDP to contract by 2.8 per cent in 2009, and there is a very real danger that the decline could be even larger."

Analysts had forecast a month-on-month drop of about 1.5 per cent, with an annual decline of 6 per cent.

Overall industrial production, which also includes the mining and utility sectors, fell 2.3 per cent between October and November as the fallout from the banking crisis hit.

Howard Wheeldon, senior strategist at BGC Partners, said it was time to "invest in manufacturing for the longer term".

He added: "Government should do more to encourage us to support our home-grown industries and it should sing the song and put far more resources into export support."

The dismal output figures came as separate ONS data for producer price inflation suggested factory gate prices were stabilising.

Prices were unchanged on the month, compared to analysts' expectations for a fall. That left the annual rate of output price inflation at 4.7 per cent in December, compared with 5.1 per cent the previous month.

A drop in the cost of petrol products was offset by a rise in tobacco and alcohol prices, ONS added.