Manufacturing fall prompts recession warning

Jan 12 2008 by Iain Laing, The Journal

THERE were fresh warnings of a recession in the manufacturing sector yesterday after figures showed a fall in production during November.

Manufacturing output fell by 0.1% between October and November, confounding most economists’ predictions of a 0.1% rise, according to the Office for National Statistics (ONS).

The data adds more weight to calls from industry for further interest cuts to stave off a slump, although the Bank of England held borrowing costs unchanged at 5.5% yesterday.

Capital Economics expert Paul Dales said: “The modest fall in UK manufacturing output could possibly be the start of a downward trend that will end with the sector slipping into a recession later this year.”

The decline was led by significant falls in the transport and electrical equipment sector. In the three months to November, output fell 0.2% compared with the quarter to October.

The downbeat survey data continues to build a gloomy picture for manufacturers this year after the Chartered Institute of Purchasing and Supply (CIPS) showed easing growth in December as firms battled with higher costs and the impact of the credit crunch.

The CIPS figures showed new orders also fell to a 21-month low in December after weaker domestic and foreign demand.

Global Insight’s chief economist, Howard Archer, said the ONS figures made a cut from Bank of England rate-setters next month more certain.

He said: “Growing evidence that the manufacturing sector is faltering reinforces our belief that the Bank will cut rates to 5.25% in February.”

Mr Archer believes borrowing costs could be as low as 4.5% by the end of the year.