U.K. Manufacturing Output Declined More Than Forecast
U.K. manufacturing fell more than economists forecast in April, pointing to continued weakness in the economy at the start of the second quarter.
Factory output dropped 0.7 percent from March, led by pharmaceuticals, aircraft maintenance and food and drink production, the Office for National Statistics said today in London. The median forecast of 30 economists in a Bloomberg News survey was for a decline of 0.1 percent. Overall industrial output was unchanged on the month, weaker than the 0.1 percent increase forecast by economists.
A report earlier this month showed manufacturing shrank the most in three years in May as government budget cuts and the euro-area debt crisis hampered growth. While the Bank of England left its bond-purchase target unchanged this month, policy maker Adam Posen said yesterday he was “too optimistic” when he abandoned a push for more stimulus in April.
“The underlying picture is very worrying,” said Alan Clarke, an economist at Scotiabank in London. “We’re starting to see tangible spillover effects from the euro-zone crisis. Risk aversion is stopping investors from investing, companies from hiring and consumers from spending.”
The pound rose 0.1 percent against the dollar from yesterday and traded at $1.5498 as of 10:33 a.m. in London. The yield on the benchmark 10-year U.K. government bond rose 2 basis points to 1.676 percent.
Out of 13 categories in manufacturing, seven rose and six declined in April from the previous month, the statistics office said. From a year earlier, manufacturing production fell 0.3 percent and industrial output was down 1 percent, the 14th consecutive month of annual declines.
Within industrial production, oil and gas extraction dropped 6.4 percent from March, partly due to the closure of Total SA (FP)’s Elgin platform after a gas leak. The installation accounts for about 5 percent of North Sea oil production, according to the statistics office. Energy supply output surged 13.6 percent as the average temperature in April was the lowest for that month since 1989.
The mounting euro-area debt crisis has boosted demand for the pound, pushing it up about 4 percent against the euro in the past three months.
In Asia, investor concern about Europe has fueled a 5 percent gain in the yen against the dollar since mid-March. The International Monetary Fund said today that Japan’s haven status has led its currency to be overvalued and the central bank should consider further monetary stimulus, including purchases of longer-dated government bonds and private securities.
“The yen is moderately overvalued from a medium-term perspective,” the Washington-based IMF said in a report. The Bank of Japan (8301)’s asset-purchase program “could be expanded substantially beyond current plans to increase the likelihood of achieving the 1 percent inflation goal by end 2014.”
Elsewhere in Asia, India said industrial production expanded 0.1 percent in April from a year earlier, less than the 1.7 percent increase forecast in a Bloomberg survey of economists. Bank Indonesia held its key interest rate at 5.75 percent for a fourth month to support a weakening currency.
While the MSCI Asia Pacific Index dropped 0.6 percent, the Stoxx Europe 600 Index rose 0.5 percent.
In the U.S., confidence among small businesses probably fell in May from a month earlier, a Bloomberg survey showed ahead of a report by the National Federation of Independent Business today. The Labor Department may say import prices declined in May from April, a separate survey showed.
The London-based National Institute of Economic and Social Research will publish its U.K. gross-domestic-product estimate for the three months through May later today. Britain’s economy shrank 0.3 percent in the first quarter after contracting by that amount in the last three months of 2011.
In contrast to the U.K. outlook, the Swiss government’s expert group raised its 2012 growth forecast on domestic demand. Gross domestic product will rise 1.4 percent instead of a previously projected 0.8 percent, the State Secretariat for Economic Affairs in Bern said. In 2013, the economy may expand 1.5 percent, compared with a March forecast of 1.8 percent.
The Bank of England’s Posen said the economic recovery has “petered out in the U.K. and elsewhere,” and the “risk of disorder in the euro area has reinforced the trends towards excessive reluctance to invest.” Spain requested as much as 100 billion euros ($125 billion) of European bailout funds last week to shore up its banking system.
“Further asset purchases by central banks can improve the economic situation we are now in,” Posen said in London.
A Confederation of British Industry factory survey published on May 23 found demand fell in May to the weakest this year and the outlook “deteriorated sharply.” Still, services unexpectedly maintained their pace of expansion in May, a report from Markit Economics last week showed, signaling some strength in the economy.
To contact the editor responsible for this story: Craig Stirling at firstname.lastname@example.org