Economy Worries Deepen With Manufacturing Decline

Fri, 08 Feb 2008

Manufacturing output dropped unexpectedly in December, for a second month running, adding to increasing evidence that the economy suffered a slowdown at the end of 2007.

New data released yesterday showed despite analysts in November forecasting a 0.1 per cent gain, manufacturing output fell by 0.2 per cent in December.

Investors took the view that the Bank of England (BOE) would follow an expected 0.25 rate cut later on Thursday and are already betting interest rates could fall as low as 4.5 per cent (from the current 5.5 per cent) by the end of the year.

George Buckley, chief UK economist at Deutsche Bank, said: "It raises the risk that the Bank of England will have to do more than we think."

"The risk is they may have to either move quicker or more substantially, to avert the weakness in the manufacturing sector," he added.

Although analysts had forecast a 0.2 per cent gain, weakness in manufacturing heaped pressure on the broader measure of industrial production which fell by 0.1 per cent on the month.

The news of the poor manufacturing numbers, in addition to a reported slowdown in retail sales figures at the end of last year, raise the risk of the UK’s fourth-quarter economic growth figures being revised down.

According to analysts, the manufacturing slowdown was an indication that weaker global growth was more than offsetting the boost from a weaker currency .

In addition, the pound has lost nearly 10 per cent on a trade-weighted basis since last July, despite starting 2007 on a high.

Philip Shaw at Investec said: "It's disappointing news given the relative weakness of sterling over the past few months, which should give the sector a competitive boost."
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