LONDON: Britain’s manufacturers cut production going into the new year, according to official figures that showed a dip of 0.5% in output in January compared with the previous month.
The fall in output contributed to an unexpected reverse in the broader measure of industrial production, which fell month on month by 0.1%, against a 0.2% increase predicted by economists taking part in a Reuters poll.
Sterling fell a cent against the dollar to $1.50 on the news that a key measure of the British economy’s health was again looking lacklustre. While the services sector has recovered to beat its previous peak output, manufacturing and industrial production, which includes the energy sector and mining, remain well below their peak.
In December, industrial production fell 0.2%, which the Office for National Statistics blamed on oil rig maintenance in the North Sea. The decline in January was due to a fall in factory output led by computer electronics makers, who cut production by almost 10% in response to falling orders.
The pound has tumbled against the dollar since last summer when it peaked at $1.71. Most of the shift in the exchange rate has followed a rush of funds into the US in response to rising expectations that the US Federal Reserve will raise interest rates. However, against a trade-weighted basket of currencies, sterling has risen to its highest since 2008, up almost 5% so far this year, a development that affected overseas sales in February.
Jameel Ahmad, chief market analyst at FXTM, said: “The industrial production number coming in below expectations has softened some of the optimism that UK economic momentum had gathered since the start of the year. With the UK election looming, I do not personally think sterling/dollar has bottomed out.”
A warmer winter and the decline in oil prices over the last eight months have hit production in the energy sector, but January saw the oil and gas sector bounce back with the largest contribution to growth. Oil and gas output increased by 2.4% in January after a decrease of 3.1% the previous month.
Chris Williamson, chief UK economist at financial data provider Markit, said the decline in industrial production was driven by an unusually severe plunge in the output of hi-tech equipment following a 6.5% rise in December.
