January figures chill the economy recovery hopes

Mar 11 2010 by Iain Laing, The Journal

HOPES of a stronger economic recovery in the first quarter have been winged by official figures showing a sharp fall in manufacturing output during snowbound January.

Industrial production fell by 0.4% in January compared with the previous month – much lower than the 0.3% rise pencilled in by economists.

Within the sector, the manufacturing industry suffered an even bigger 0.9% decline between December and January in what marked the first month-on-month fall since last August, according to the Office for National Statistics (ONS).

January’s freezing weather conditions were largely to blame for the worse-than-expected figures, which called an abrupt halt to the revival seen at the end of last year.

Manufacturing activity had surged by 0.9% in December, which also affected the month-on-month comparison in January.

David Kern, chief economist at the British Chambers of Commerce (BCC), warned that the January manufacturing figures would deal a “serious” blow to the economy’s performance in the first quarter.

“The new figures were worse than expected, even after making allowances for the adverse effect of January’s bad weather,” he said.

“There is now a serious possibility that gross domestic product (GDP) in the first quarter of this year will show a slowdown compared with the last quarter of 2009.”

January’s snow came as an unwelcome hindrance to Britain’s recovery efforts, with the retail sector and housing market taking a hit from the adverse conditions.

Recent trade figures were dismal after the snow caused the biggest plunge in exports for more than three years during January – a £1.4bn or 6.9% fall -– which saw the trade gap widen to a mammoth £8bn.

But there are hopes that February and March will be better for the economy after the weather improved.

Recent industry data from the Chartered Institute of Purchasing & Supply (CIPS) found that expansion in the manufacturing sector hit a 15-year high last month, suggesting January may have been a blip in recovery.

Howard Archer, economist at IHS Global Insight, said: “Just as December’s 0.9% jump in manufacturing output overstated the sector’s strength, so January’s 0.9% drop overstates its weakness. The overall impression we get from the recent data and survey evidence is that manufacturers are currently seeing a reasonable, but far from spectacular pick-up in activity after a largely dire 2009 as they benefit from leaner stock levels, improved competitiveness in both domestic and foreign markets stemming from the weak pound, and recently firmer demand in key overseas markets.”