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Triple-dip fears after bad month for manufacturers

The UK's already under pressure manufacturing sector had a bad January, heightening fears of a return to recession. Picture: Getty

The UK's already under pressure manufacturing sector had a bad January, heightening fears of a return to recession. Picture: Getty

  • by SCOTT REID
 

A DIRE month for Britain’s manufacturers has fanned fears of a triple-dip recession and piled further pressure on the pound.

The latest gloomy data from the Office for National Statistics (ONS) comes just a week ahead of the crucial Budget statement, with Chancellor George Osborne facing calls to relax his austerity measures.

The UK economy contracted by 0.3 per cent at the end of 2012 and will return to recession if there is another decline in the current quarter.

Scotiabank economist Alan Clarke said news of an unexpected decline in manufacturing was the “penultimate nail in the coffin in terms of triple-dip”.

“It’s pretty much game over now,” he added. “Unless we have a stellar performance from the services sector, we’re almost certainly in a triple dip.”

Manufacturing output fell 1.5 per cent during a snow-hit January, wiping out December’s gain and bucking forecasts for a flat reading.

The decline meant that overall industrial output, which also includes energy and mining production, dropped by 1.2 per cent in January, dashing City hopes for a better performance over the month.

Other factors behind the fall included the closure of the Schiehallion oil platform in the North Sea, which drove a 4.3 per cent slide in oil and gas output.

The pound slipped to a fresh two-and-a-half-year low of $1.48 in the wake of the figures.

Weak industrial production was one of the main drags on the UK economy in the final three months of 2012, leading to its return to the red. While it is still possible the services sector could ride to the rescue this quarter, the bleak manufacturing figures will increase the pressure on the Bank of England to boost stimulus measures next month.

Most City experts believe there will be more quantitative easing this spring, with interest rates held at a record low for a further two years.

Meanwhile, the central bank and Treasury are understood to be looking at ways of bolstering their £80 billion Funding for Lending scheme, in particular by directing efforts at small and medium-sized businesses rather than mortgages as it has so far offered little help to firms.

Howard Archer, chief UK economist at IHS Global Insight, described yesterday’s ONS figures as “awful” and said they were a “real blow” to first-quarter recovery prospects.

“It looks to be ever more a question of what further action will the Bank of England take to try and help the economy, rather than will they act,” noted Archer. “It is also evident that the Bank is looking for other ways of helping the economy, particularly in trying to get more working capital through to smaller companies. Further measures seem highly likely in this area.”

David Tinsley, UK economist at banking group BNP Paribas, said: “The size of the decline in manufacturing is a little at odds with recent surveys. The manufacturing PMI [purchasing managers’ index] reported rising output in January, though this has pulled back in February, while the CBI industrial trends survey also suggests output was rising.”

Separate ONS data showed a rare improvement in Britain’s trade position. The goods trade deficit shrank to some £8.2bn in January from £8.7bn in December, driven by the biggest monthly drop in oil imports since August 2008.

 

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