UK manufacturing sector suffers unexpected dip

Britain's manufacturing sector suffered an unexpected dip in production in April, according to official data today that raised fresh fears over the strength of the economic recovery. Britain's factories had been one of the main drivers of growth in the first quarter but the Office for National Statistics data suggested the second quarter got off to a weak start with output in April down 0.4% month-on-month compared with analysts' forecasts for a 0.5% rise and a jump of 2.2% in March. The ONS said the biggest drivers in the April decline were transport, food, drink, tobacco and electrical subsectors but that disruption to flights from the volcanic ash cloud did not appear to have played a role. The monthly data echoes warnings from business groups that the short-term boosts in this early part of the upturn are fading. Stimuli from government and the Bank of England are wearing off and so is the boost to production from companies rebuilding their inventories. But in year-on-year terms manufacturing output rose 3.4%, a slight slowdown from growth of 3.7% in March, but still chiming with industry surveys suggesting orders and output remain strong. Lee Hopley, chief economist at manufacturers' organisation EEF, warned the data should still be taken as a warning sign ahead of chancellor George Osborne's emergency budget on 22 June. "Taken with recent data on exports and investment they suggest that the strong recovery we're seeing on the ground can't be taken for granted and the forthcoming budget must provide measures to support the investment needed to rebalance our economy," she said. Graeme Allinson, head of manufacturing, transport and logistics at Barclays Corporate also said the sector needed "serious investment" to complement increasing orders otherwise the recovery would remain constrained. "Clarity around public sector cuts and less volatile financial markets should move some way towards creating a more investment friendly landscape for manufacturers," he added. The ONS wider measure of industrial output, which includes energy production, also declined 0.4% on the month, compared with a 0.4% rise forecast in a Reuters poll of economists. At the same time, separate data from the ONS showed manufacturers continue to face pressure on their margins. With the weak pound compounding the effects of costlier commodities from overseas such as metals, input price inflation eased less than expected to 11.2% in May. That followed 13.1% inflation in April and compared with a forecast for 10.7%. At the same time output prices – what factories charge for their goods – rose 5.7% on the year, below forecasts for 5.8% and down from 5.9% in April. The news that factories are not passing all their rising costs on to consumers will come as comforting news to the Bank of England, whose government-set inflation target of 2% has been overshot for several months. There are signs, however, that the relatively high inflation is now becoming entrenched. Britons responding to a quarterly Bank poll expect inflation to run at 3.3% over the coming 12 months, the highest for almost two years. The survey showed just over half of Britons expect interest to rise over the coming year from their current record low of 0.5%.