Manufacturing output plummets

Manufacturing output fell at its sharpest rate for nearly three years in March, official data showed today, as the Bank of England met for its latest interest rate decision.

The Office for National Statistics (ONS) said manufacturing production fell by 1.6% on the month in March, while overall industrial production dropped by 1.2%.

"The industrial production data for March are horrendous, and point to a downward revision to UK growth in the first quarter from 0.6% quarter-on-quarter to at least 0.5% quarter-on-quarter," said Howard Archer of the consultancy Global Insight.

Analysts had forecast that manufacturing production would firm by 0.1% on the month and industrial production would rise by 0.2%.

For the first three months of the year, industrial production decreased by 0.7% compared with the fourth quarter of 2004. The ONS said the quarterly decline compared with an estimate of a fall of 0.1% that had fed into the preliminary GDP report.

As a result, the new data could knock 0.13 percentage points off the 0.6% estimate for first quarter GDP.

Today's grim manufacturing numbers followed a recent equally bleak survey for the sector, which has lost a million jobs since Labour came into power in 1997.

A manufacturing survey by the Chartered Institute of Purchasing and Supply (CIPS) revealed last week that, for the first time in almost two years, manufacturing activity had shrunk following the collapse of the car manufacturer MG Rover.

The ONS today said the decrease in manufacturing output between February and March was widespread, with output falling in twelve of the thirteen subsectors. It said the most significant decreases came in the chemicals and man-made fibres industries (2.7%) and the paper, printing and publishing industries (2.2%).

Manufacturing is feeling the heat from intense international competition, heightened in many cases by the strength of sterling against the dollar. Soft growth in key overseas markets and high oil prices are also proving serious handicaps for manufacturers.

Today's manufacturing data makes it even more likely that the Bank's monetary policy committee (MPC) will leave interest rates unchanged at 4.75% for the ninth month running.

But complicating the Bank's job is the rise in producer price inflation, which rose more than expected in April, the ONS said in a separate report.

According to the ONS, factory gate prices rose 0.7% on the month in April, indicating that underlying inflationary pressures are building up. Analysts forecast that output prices would rise 0.3% on the month.

"The producer price inflation and industrial production data highlight the predicament currently facing the MPC," said Mr Archer. "We believe that the MPC is likely to remain on the sidelines for at least a couple more months, while it tries to determine whether the economy is just going through a temporary soft patch, or whether it seems to be the start of a sustained slowdown in activity."