Fall in manufacturing output fuels fears of economy slowdown


UK factory output slumped in February, fuelling fears the economy is slowing down.

Official figures showed manufacturing output dropped by 1.1% on the month in February, following a rise of 0.5% in January.

The data from the Office for National Statistics (ONS) showed the hit came from a 2.9% fall in the manufacturing of transport equipment.

Manufacturing also tumbled 1.8% year-on-year in February, its biggest fall since July 2013.

Activity in the wider industrial production sector edged down 0.3% month-on-month in February after it rose 0.3% in the previous month.

Last week a report from the monthly Markit/CIPS survey of British manufacturers said factory output was stuck in the "doldrums" at close to three-year lows for March.

The closely watched manufacturing purchasing managers' index (PMI) showed the sector barely remained in growth territory, with a reading of 51 last month, edging up from 50.8 in February, amid a fragile UK economy and global slowdown.

The UK Government has been eager to expand the manufacturing industry to help balance the economy and reduce its reliance on retail spending to drive growth.

Manufacturing output makes up around 12% of the UK economy, whereas the powerhouse services sector accounts for around three-quarters of UK gross domestic product (GDP).

Pantheon Macroeconomics economist Samuel Tombs said pressure will now be on the services sector to deliver a strong performance.

He added: "The industrial slump places more of the onus on the services sector to drive growth, but the weakness of the CIPS services PMI in both February and March suggests that all sectors now are struggling."

This week's monthly Markit/CIPS PMI for the services sector reported sluggish growth, with a reading of 53.7 last month, improving on the near three-year low of 52.7 in February.

Howard Archer, chief European and UK economist at IHS Global Insight, said the manufacturing slowdown pointed to slowing economic growth.

He predicts GDP to hit 0.4% in the first quarter, down from 0.6% in the fourth quarter of 2015.

He added: "It is hard seeing any marked pick-up in manufacturing activity happening in the near-term at least, given domestic and global economic uncertainties.

"Increased caution in the run-up to June's referendum on EU membership is likely to constrain business demand for capital goods and big-ticket consumer goods."