U.K. Manufacturing Unexpectedly Weakened in April as Car Output Declined
Factory output fell 0.4 percent from March
Frantzesco Kangaris/Bloomberg
LTI taxis move along the production line at the company's Manganese Bronze Holdings factory in Coventry, U.K.
LTI taxis move along the production line at the company's Manganese Bronze Holdings factory in Coventry, U.K. Photographer: Frantzesco Kangaris/Bloomberg
U.K. manufacturing unexpectedly weakened in April for the first time in three months as car production dropped, a sign the economic recovery may be struggling to keep momentum.
Factory output fell 0.4 percent from March, the Office for National Statistics said today in London. Economists predicted a 0.5 percent increase, according to the median of 25 forecasts in a Bloomberg News survey. A separate report showed producer prices rose 0.3 percent in May, less than the median forecast for an 0.5 percent increase.
Britain faces a public spending squeeze at home and the threat of contagion from the debt crisis in the euro area, its biggest trading partner. Officials are counting on factory exports to aid expansion after the pound dropped about a quarter on a trade-weighted basis since the start of 2007.
“This is a surprise, and it’s not particularly encouraging,” Peter Dixon, an economist at Commerzbank AG in London, said in a telephone interview. “The outlook for manufacturing continues to remain grim.”
The pound was little changed after the report, trading up 0.1 percent on the day at $1.4674 as of 9:46 a.m. in London. The benchmark two-year U.K. government bond was down 1 basis point at 0.85 percent.
Transport, Food
Of 13 categories in manufacturing, seven fell and six rose. The biggest decrease was in transport equipment, including cars, followed by food, drink and tobacco, and electrical and optical equipment.
Chloride Group Plc, Britain’s largest maker of backup power equipment, said May 24 full-year profit dropped 27 percent on one-time restructuring charges and as its operating margin declined.
Overall industrial production, which includes utilities, mining and quarrying and accounts for 17 percent of the economy, also fell 0.4 percent on the month. Economists predicted a 0.4 percent gain, according to the median of 26 forecasts in a Bloomberg News survey.
Some economists cautioned that today’s data should be taken alongside the strength of the previous month’s figures. The index of manufacturing in March reached the highest level since November 2008 after a 2.2 percent increase in production.
Don’t ‘Overreact’
“We shouldn’t overreact too much to weakness in the manufacturing data because we had a had a super-strong month in March,” Alan Clarke, an economist at BNP Paribas in London, said in a telephone interview.
The U.K. economy expanded 0.3 percent in the first quarter after growing 0.4 percent in the previous quarter. The economy has expanded for two consecutive quarters, ending the worst recession on record.
The European Central Bank yesterday cut its growth forecast for the euro region in 2011 to 1.2 percent from an earlier projection of 1.5 percent because of weaker domestic demand.
The Bank of England yesterday maintained its 200 billion- pound ($294 billion) emergency stimulus to nurture the economic recovery, even as inflation exceeds the bank’s 3 percent upper limit. Consumer prices rose an annual 3.7 percent in April, the most since 2008.
Today’s data showed producer-price pressures may be easing. The cost of goods at factory gates rose 0.3 percent on the month, the least in three months and less than the 0.5 percent median forecast in a Bloomberg News survey of 15 economists. Raw material costs fell 0.6 percent on the month after the price of crude oil dropped, the statistics office said.
To contact the reporters on this story: Jennifer Ryan in London at jryan13@bloomberg.net; Thomas Penny in London at tpenny@bloomberg.net
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