Bloomberg News

U.K. Manufacturing Grows More Than Forecast

May 10, 2012

The biggest gains in manufacturing were in chemicals, transport equipment and computers and electronic and optical products. Photographer: Chris Ratcliffe/Bloomberg

The biggest gains in manufacturing were in chemicals, transport equipment and computers and electronic and optical products. Photographer: Chris Ratcliffe/Bloomberg

U.K. manufacturing output rose more than economists forecast in March as producers of chemicals, transport equipment and electronics led a recovery from disruptions caused by snowfall the previous month.

Factory output rose 0.9 percent from February, when it fell a downwardly revised 1.1 percent, the Office for National Statistics said today in London. The median of 29 economists estimates in a Bloomberg News survey was for an increase of 0.5 percent. Overall industrial production including utilities and mines fell 0.3 percent.

Manufacturing prospects remain uncertain as government- spending cuts sap consumer spending and the deepening euro- region crisis erodes demand in the biggest market for British goods. That’s led some economists to doubt that trade and investment will provide the boost to the economy envisaged by official forecasters.

“This is a bounce back,” said Alan Clarke, an economist at Scotia Capital in London. “Things are not looking as good as we hoped for manufacturers. Our main trading partners, particularly the eurozone, are in recession. It’s all very well to be competitive but you need someone to buy the stuff.”

The pound was little changed against the dollar after the report and was trading as $1.6118 as of 9:45 a.m. in London, down 0.1 percent on the day.

Stimulus Program

The economy’s return to recession has revived expectations the Bank of England will expand its emergency stimulus program, with eight of 51 economists in a Bloomberg survey predicting the central bank may move as early as today. Most expect policy makers to leave their bond-buying plan at 325 billion pounds ($523 billion). The decision will be announced at noon.

The pickup in manufacturing in March suggests output rebounded after being hit by widespread snowfall in central and eastern England in the first half of February. Out of 13 categories in manufacturing, eight rose, four declined and one was unchanged. The biggest gains were in chemicals, transport equipment and computers and electronic and optical products.

Overall industrial production was depressed as the warmest March for half a century reduced demand for energy and oil and gas extraction fell.

Below Peak

In the first quarter, manufacturing output was unchanged compared with the 0.1 percent fall estimated in gross domestic product figures last month. Industrial production fell an unrevised 0.4 percent. The revision to manufacturing has no impact on GDP in the first quarter, the statistics office said.

Unlike Germany and the U.S., Britain has failed to recover the output lost in the previous recession and many forecasters including the Confederation of British Industry expect growth this year to fall short of the 0.8 percent predicted by the Office for Budget Responsibility in March.

The economy shrank for a second straight quarter between January and March and surveys last week indicated manufacturing, services and construction weakened in April. Output is expected to be depressed further in the current quarter by an extra public holiday in June to mark Queen Elizabeth II’s 60 years on the throne.

In the euro region, which buys 40 percent of U.K. exports, prospects are worsening. The German economy turned negative at the end of 2011 and Italy, Spain, the Netherlands and Ireland are all back in recession. Weekend elections in Greece sparked market turmoil by raising renewed doubts the country can stay in the euro.

Manufacturing is also under pressure from rising energy prices, which is squeezing profits and eroding household incomes.

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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