Decline in factory output worries economists

THE PACE of recovery in Britain’s manufacturing sector was thrown into doubt yesterday after shock figures revealed a big decline in factory output.

The Office for National Statistics (ONS) said the sector slumped 1.3% in May against the previous month, the biggest fall since January last year and ending a six-month run of growth.

The figure compared with City forecasts of a 0.4% rise and counters other recent surveys pointing to m o re strong growth for manufacturers.

Economists believe the figures may prove to be a blip, although they are worried the pound’s recent surge to a near-six year high against the dollar and the continued woes of the eurozone may be hampering export progress.

The figures will also serve as a warning about the danger of raising interest rates too soon.

The Bank of England will announce its latest decision on rates today.

Neil Prothero, deputy chief economist at the EEF manufacturers’ organisation, said firms continue to face a number of headwinds, not least subdued external demand across Europe.

“Despite the dip, manufacturing remains on track to expand for a fifth quarter, and anecdotal evidence from across the sector continues to point to solid momentum over the second half of the year,” he said.

Manufacturing output was still up by 1.1% in the three months to May compared with the three months to February and was up 3.7% year-on-year in May.