Bloomberg News

U.K. Manufacturing Increases Less Than Forecast in January

March 09, 2012

A row of Mini Cooper body shell's pass along the production line at the company's Cowley plant. Photographer: Chris Ratcliffe/Bloomberg

A row of Mini Cooper body shell's pass along the production line at the company's Cowley plant. Photographer: Chris Ratcliffe/Bloomberg

U.K. manufacturing output rose less than economists forecast at the start of the first quarter and price pressures intensified, signaling headwinds facing the economy.

Factory output rose 0.1 percent from December, the Office for National Statistics said today in London. The median forecast of 30 economists in a Bloomberg News survey was for an increase of 0.3 percent. Overall industrial output unexpectedly dropped 0.4 percent. A separate report showed producer prices rose more than forecast in February as crude oil prices increased.

The weakness in factory output indicates Britain’s recovery may struggle to gain traction after a 0.2 percent drop in gross domestic product in the fourth quarter. At the same time, the Bank of England may have to contend with a renewal of inflationary pressures as crude oil prices boost fuel costs.

“Manufacturing is past the worst that we saw in the second half of 2011, but it’s still in a very difficult situation,” Howard Archer, chief European economist at IHS Global Insight in London, said before the release. “Another problem is the rise in oil prices. It may put pressure on manufacturers to raise prices at a time when demand is still fragile.”

The pound fell as much as 0.1 percent against the dollar after the data was released and was trading at $1.5780 as of 9:32 a.m. in London. The yield on the 10-year U.K. government bond was little changed at 2.15 percent.

Food, Chemicals

Out of 13 categories in manufacturing, six declined and seven rose in January from the previous month, the statistics office said. The biggest declines were in the categories of food and beverages, transport equipment and chemicals.

From a year earlier, manufacturing rose 0.3 percent, while overall industrial production was down 3.8 percent.

The monthly drop in overall industrial output, which includes mining and quarrying and utilities, compared with the median forecast of 30 economists in a Bloomberg News survey for a 0.3 percent increase. Oil and gas extraction plunged 3.3 percent in January from December.

A separate report from the statistics office showed U.K. factory output prices rose 0.6 percent in February from the previous month, the most since April and twice as much as economists had forecast. The annual rate of inflation accelerated to 4.1 percent from 4 percent.

Input prices jumped 2.1 percent on the month and 7.3 percent on the year. The monthly increase was driven by a 5.8 percent surge in crude-oil and gas prices, with the latter boosted by cold weather in Europe and supply risks from Russia, the statistics office said.

Bank of England

The Bank of England held its bond-purchase target at 325 billion pounds ($514 billion) this month after increasing it by 50 billion pounds in February. Still, policy makers including Martin Weale have signaled that they are concerned about the pace of consumer-price inflation.

Surveys this month indicated that the U.K. economy returned to growth in the first quarter after a 0.2 percent contraction in the last three months of 2011. Reports from Markit Economics showed manufacturing and services continued to expand in February and construction growth accelerated.

To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net

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


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