Manufacturing decline worst in 40 years

Manufacturing output suffered its sharpest decline in at least 40 years in the three months to February, according to official data published on Tuesday, but the pace of decline appears to be slowing.

Manufacturing production fell by a seasonally adjusted 6.5 per cent in the three months to the end of February compared to the previous three months, the Office of National Statistics reported. That is the biggest drop since monthly data on manufacturing output began in 1968.

The contraction in manufacturing over the three month period now outpaces any similar period during the recessions of the 1980s and 1990s, which were felt most keenly in the UK's industrial heartlands. It comes amid a collapse in world trade and a slowdown in domestic demand. Output has also fallen swiftly as companies shut down production lines in order to sell off stockpiles of goods that have built up on their shelves.

But the retrenchment in the manufacturing sector was slower in February than it was in January - output fell by 0.9 per cent compared to 3 per cent drop in the month before. The drop in production was the smallest since last August, a slower rate of decline that echoes other data recently that has suggested the most extreme point of the recession may have passed.

Compared to a year earlier, output is now down 13.8 per cent - a slightly smaller contraction than the 14.2 per cent decline that economists had been expecting.

"February's better than expected industrial production figures tentatively suggest that the drag on output from manufacturers running down their inventories might be easing," said Vicky Redwood of Capital Economics. "However, the sector's still in pretty bad shape."

The fall in manufacturing output helped to drag overall industrial production, which also includes mining, electricity, gas and water production, down by 5.8 per cent in the three months - the sharpest pace of decline since a 7 per cent drop in 1974.

The slightly slowing pace of decline in manufacturing comes after a number of indicators have raised hopes recently that the pace of the recession may be slowing.

But in manufacturing the picture has been mixed. The closely watched purchasing managers index for the sector showed a sharp improvement in March after reaching a record low in February. Other data including the CBI industrial trends survey and the British Chamber of Commerce quarterly report on manufacturing, on the other hand, have not registered any improvement.

Data on the services sector, which is a much larger component of the British economy, has however picked up while mortgage approvals have risen sharply.

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