Picture: BLOOMBERG/MARTIN LEISSL
Picture: BLOOMBERG/MARTIN LEISSL

London — UK manufacturing shrank for the first time in 11 months in February, led by output of machinery and equipment.

The drop brings to an end an unprecedented run for manufacturers that helped underpin the economy as a squeeze from rising prices took its toll on consumer spending.

Factory output declined 0.2% — missing expectations for a 0.2% increase — after stagnating in January. Overall, industrial production rose a smaller-than-forecast 0.1%, with the growth largely due to below-average temperatures boosting demand for energy.

Pantheon Macroceconomics expects a stronger production figure in March, but says it won’t be enough to offset weakness in retail and consumer activity and construction, all of which took a hit from the "Beast from the East’’ snowstorm.

Economist Samuel Tombs says GDP growth may be weaker in the first quarter than the Bank of England has estimated, which casts doubt on whether a May interest-rate increase is as likely as market pricing suggests. The pound pared its advance against the dollar and was at $1.4199 as of 10.55am London time, up 0.2% on the day.

Seven out of 13 manufacturing sectors saw output decline, with machinery and equipment dropping 3.9% after a strong January. In the latest three months, factory output rose 0.6%, the least since July.

There was no evidence that snow and icy conditions affected production in February, the UK’s Office for National Statistics (ONS) said, though the freeze that engulfed the country only began late in the month. It may, however, have disrupted building projects.

Construction woes

A 1.6% decline in construction output was driven by infrastructure, private industrial work and repairs. It followed a 3.1% drop in January, when work was halted at a number of construction sites following the collapse of contractor Carillion.

The figures suggests the first three months of 2018 displayed a similar pattern to the end of 2017, with industrial output increasing and building work shrinking for a second consecutive quarter.

Growth may get a boost from trade after the deficit in goods and services narrowed much more than forecast to £965m in February.

A fall in the value of exports was more than offset by an even greater decline in imports, much of it due to machinery and transport equipment and fuel.

The first-quarter shortfall will come in below the £7.6bn posted in the fourth quarter if March sees a deficit of less than £3.7bn.

Bloomberg

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