The pace of recovery in Britain’s manufacturing sector was thrown into doubt 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 2013 and ending a six-month run of growth.
The figure compared with forecasts in the City for a rise of 0.4% and counters other recent surveys pointing to strong growth for manufacturers.
Economists believe the figures may be a blip, although they are worried that 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 are also likely to serve as a warning to policymakers about the danger of raising interest rates too soon. The Bank of England is due to announce its latest decision on rates tomorrow, with many experts expecting the first increase from the current record low of 0.5% before the end of this year.
The pound, which has risen above 1.71 against the US dollar on expectations of a rate hike, slipped back day in the wake of the manufacturing figures.
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, which continues to weigh on export prospects. He added: “Despite the dip, manufacturing remains on track to expand for a fifth consecutive quarter, and anecdotal evidence from across the sector continues to point to solid momentum over the second half of the year.”
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. Overall industrial production, which includes mining and quarrying, electricity and gas output, and water supply, fell 0.7% month-on-month in May, although it was up by 0.6% in the three months to May, the ONS added.
Howard Archer, chief UK economist at IHS Global Insight, said the prospects still look largely encouraging for manufacturers. He said: “Buoyant consumerconfidence, elevated and rising employment and a robust housing market should bolster demand for consumer goods, while purchasing power should gradually pick up.”