The beleaguered state of the UK manufacturing sector was brought home today by figures showing the sharpest drop in output for almost three years.
Economists expressed their shock at the performance, which involved a 1.6% drop in production between February and March.
That was the worst figure since June 2002, when output declined by 5.8% in a month and was affected by the Queen’s Jubilee anniversary celebrations.
Beyond that, output had not fallen by as much since January 1995, when there was a 2.3% fall.
The figure caught the City on the hop as most analysts had been forecasting a small rise in output in March.
Investec chief economist Philip Shaw described the performance as “appalling” and said he was likely to revise his forecast for GDP growth to 2.6%, from the 2.7% pencilled in prior to today.
Chancellor Gordon Brown is currently looking for GDP of between 3% and 3.5% in 2005.
Mr Shaw said the impact of an early Easter may have been a factor in the weakness, meaning that there remained a chance of a rebound in April.
He added: “Surveys of late have been suggesting toughening conditions in the sector, but nothing to imply a fall of this scale. However, we won’t be too hasty to condemn the sector until we have seen April’s number.”
The figures from the Office for National Statistics (ONS) emerged just hours before the Bank of England’s Monetary Policy Committee was due to announce its latest decision on interest rates.
The ONS also said factory gate prices rose by 0.7% in April ‑ more than City expectations ‑ and by 3.2% over the past 12 months. Input prices were 0.3% higher than forecasts last month.
David Frost, director general of the British Chambers of Commerce, said: “The output drop comes as little surprise. Our Quarterly Economic Survey has indicated the difficulties in the manufacturing sector, as has the fall in employment.
“We are hearing daily announcements of redundancies around the UK from manufacturing firms.
“The issue, which has to be at the top of Alan Johnson’s in-tray as the new Secretary of State for Productivity, Energy and Industry, is how to stem the decline and to re-invigorate our manufacturing industry.
“We want to see action to reduce the burden of red tape, no further extension to employee rights to request flexible working and paid parental leave for the time being, and incentives to stimulate more investment within business.”
References: EGi News 09/05/05
