U.K. February Manufacturing Rebounds After Snow Slump: Economy

U.K. manufacturing rose twice as much as economists forecast in February as it rebounded from a slump during snow the previous month.

Factory output increased 0.8 percent from January, when it fell 1.9 percent, the Office for National Statistics said today in London. The median forecast of 29 economists in a Bloomberg News survey was for a gain of 0.4 percent. While total industrial output also increased more than forecast, separate data showed the goods trade deficit widened as exports declined.

Today’s data may ease concern the economy will fall back into a recession as manufacturers battle a continued slump in the euro area, the U.K.’s biggest trading partner, as well as lackluster demand at home. The economy shrank in the fourth quarter and Markit Economics said last week that its industry surveys point to growth of a “mere” 0.1 percent in the three months through March.

“This makes a triple-dip recession in the first quarter marginally less likely, and slightly reduces the chances of further Bank of England stimulus in the near-term,” said Rob Wood, an economist at Berenberg Bank in London. “This does not affect the underlying picture for the U.K., which is one of stagnation.”

The pound extended its gain against the dollar after the data were published. It was trading at $1.5317 as of 10:58 a.m. in London, up 0.4 percent from yesterday. Government bonds declined, pushing the yield on the 10-year gilt up 4 basis points to 1.74 percent.

Machinery Output

Out of 13 categories in manufacturing, eight rose in February from the previous month, the statistics office said. Four declined and one was unchanged. The biggest upward impact came from machinery and equipment, transport equipment and basic metals. Manufacture of consumer durable goods fell 5.1 percent, the most since April 2008. From a year earlier, manufacturing production fell 1.4 percent.

Smiths Group Plc, a maker of airport security scanners, said last month that it sees “tough trading conditions” in the fiscal second half through July.

“While February’s industrial production and trade data increase the chances that the economy has just about avoided a so-called triple-dip recession, they hardly paint a picture of strength,” said Samuel Tombs, an economist at Capital Economics Ltd. in London. “The big picture is that the economic recovery is still struggling to gain any traction.”

House Prices

Industrial output rose 1 percent in February from January and was down 2.2 percent from a year earlier. The monthly increase, which exceeded economists forecast for a 0.4 percent gain, was led by a 2.8 percent gain in mining and quarrying. Gas and electricity increased 1.3 percent, boosted by demand during cold weather. Temperatures in February were lower than the long-term average for the month.

There was positive data from the housing market today, with the Royal Institution of Chartered Surveyors saying its index of U.K. house prices rose in March as transactions picked up and the outlook improved. Separately, the British Retail Consortium said its measure of retail sales rose in March.

Still, the goods-trade gap widened to 9.42 billion pounds ($14.4 billion) in February from 8.17 billion pounds in January. That’s the biggest deficit since August. Exports fell 1.1 percent, led by oil and chemicals, while imports rose 1.7 percent. The services trade balance was 5.77 billion pounds, leaving a total trade gap of 3.64 billion pounds.

Euro Turmoil

To boost a flagging economy, Chancellor of Exchequer George Osborne expanded the Bank of England’s remit last month to give it more flexibility to meet its inflation target. Still, the Monetary Policy Committee kept its bond-purchase target at 375 billion pounds last week as concern about dislocating inflation expectations overrode the new freedoms.

U.K. inflation accelerated to 2.8 percent in February, above the BOE’s 2 percent target.

Turmoil in the euro area may also harm U.K. prospects, with renewed financial-market strains adding to the region’s struggle to emerge from a recession. Data today showed German exports fell more than economists forecast in February. Foreign sales, adjusted for working days and seasonal changes, dropped 1.5 percent from January, when they gained 1.3 percent.

France’s trade deficit widened to 6.01 billion euros ($7.84 billion) in February from 5.65 billion euros in January as exports dropped more than imports, a separate report showed.

The European Central Bank last week said it stands ready to cut interest rates if the region’s economy deteriorates further, and that officials are also considering further non-standard measures to stimulate growth.

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