Bloomberg News

U.K. Manufacturing Drops on Impact of Holidays, Japan Quake

June 10, 2011

(Updates with pound in fifth paragraph.)

June 10 (Bloomberg) -- U.K. manufacturing fell more than economists forecast in April as the extra public holiday for the royal wedding hurt orders and the impact of the Japanese earthquake hit supplies.

Factory output dropped 1.5 percent from the previous month, the most since January 2009, the Office for National Statistics said today in London. The median forecast of 24 economists in a Bloomberg News survey was a 0.1 percent decline. A separate report showed that prices at factory gates rose 0.2 percent in May, the least since September.

Manufacturing weakened in May, a survey published on June 1 showed, while factory growth also cooled in the euro area, U.S. and China. In the U.K., the government’s fiscal squeeze is weighing on the recovery and curbing domestic demand, while holidays at the end of April hurt production. The Bank of England kept its benchmark interest rate at a record low yesterday.

“The long run of bank holidays should have weakened April output,” Brian Hilliard, an economist at Societe Generale SA in London, said before the data were released. “You shouldn’t read anything into this as it should simply be distortion. We might not be quite as swooping as Germany, but we’re doing pretty well.”

The pound remained lower against the dollar after the report and traded at $1.6265 as of 9:33 a.m. in London.

Weather Impact

From a year earlier, manufacturing rose 1.3 percent in April. Overall industrial output, which includes mining and quarrying and utilities, fell 1.7 percent on the month and 1.2 percent on the year. Energy production fell as Britain experienced its warmest April on record.

In manufacturing, the decline on the month was led by transport equipment, which fell 4.1 percent, machinery and basic metals.

Renishaw Plc, a U.K. manufacturer of precision measuring equipment, said on May 17 that full-year pretax profit will beat analysts’ estimates after third-quarter revenue rose 60 percent from a year earlier. The company said it had experienced “significant growth,” particularly in China.

The statistics office revised first-quarter industrial production to a 0.1 percent decline from a 0.2 percent increase. It said this will have a “minimal impact” on gross-domestic- product data for the quarter.

Price Pressures

The 0.2 percent monthly increase in factory-gate prices compared with the median forecast of 18 economists in a Bloomberg News survey for a 0.3 percent gain. From a year earlier, prices were up 5.3 percent. Core output prices, which exclude food, drink, tobacco and petroleum, increased 0.2 percent on the month and 3.4 percent on the year.

Input costs fell 2 percent on the month, the most since April 2009. From a year earlier, they were up 15.7 percent after a 17.9 percent jump in March.

Consumer-price inflation accelerated to 4.5 percent in April and the Bank of England forecasts it could reach 5 percent later this year. Nevertheless, policy makers are holding off raising the key interest rate to support the recovery after the economy stagnated in the six months through March.

The IMF lowered its 2011 U.K. growth forecast this week to 1.5 percent from 1.7 percent in April. It sees growth accelerating to 2.5 percent in the medium term.

--With assistance from Mark Evans and Harumi Ichikura in London. Editor: Fergal O’Brien

To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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