U.K. Manufacturing Output Sinks

Via The Wall Street Journal

By JOE PARKINSON

LONDON -- U.K. manufacturing output declined for the 12th straight month in February, while the quarterly measure recorded its steepest drop since records began in 1968, the Office of National Statistics said Tuesday.

Manufacturing output fell 0.9% on a month-to-month basis in February, compared with a revised 3.0% drop in January, marking the smallest monthly drop since August 2008. Transport-equipment output -- specifically the production of auto parts -- contributed most to the decline, although basic metals and nonmetallic-mineral products also weighed.

On an annualized basis, manufacturing output dipped 13.8% in February in the largest year-on-year drop since January 1981, compared with a revised January fall of 12.9%. The ONS originally reported that January manufacturing output fell by 2.9% on the month and by 12.8% on the year.

A Dow Jones Newswires survey of economists had forecast manufacturing output would slide in February by 1.6% month-to-month and 14.3% on the year.

Economists said the slower-than-expected monthly decline suggests the worst is over, but cautioned that the sector remains in bad shape. "February's better-than-expected industrial production figures tentatively suggest that the drag on output may be easing," Capital Economics said in a research note. "However, the sector's still in pretty bad shape."

News that the decline in output slowed in February chimes with separate surveys that suggest the pace of decline is easing. According to data from economics research group Markit Economics last week, the U.K. purchasing managers index for the manufacturing sector improved significantly in March from a record low in February.

However, according to ONS, the less volatile three-monthly measure fell 6.5% in the three months to the end of February, which was the steepest drop since records began forty years ago and lower than the 6.4% drop in the three months to the end of January. That points to another sharp contraction in U.K. gross domestic product in the first quarter, following a 1.6% decline in the final quarter of last year.

"The extremely sharp decline in industrial production in the three months to February reinforces fears that U.K. GDP contracted at a rate close to the 1.6% in the fourth quarter," said Howard Archer, an economist at IHS Global Insight.

Meanwhile, ONS reported that the wider industrial production measure fell 1.0% on a monthly basis in February compared with January's revised 2.7% drop. On the year, the index slumped 12.5%, the steepest drop since records began in 1968 and compared with a revised 11.6% annual drop in January. ONS previously said that industrial production fell 2.6% on the month and by 11.4% on the year in January.