January’s chilling manufacturing output slump

Official data showed output fell by 1.5 per cent during a snow-hit January – the fastest rate since June last year – cancelling the previous month’s gains and fanning fears of an impending triple-dip.

The UK economy contracted by a worse-than-expected 0.3 per cent at the end of last year and will return to recession with another decline in the current quarter.

While it is still possible that the services sector could rescue the UK economy in this quarter, the figures increased pressure on the Bank of England to boost stimulus measures next month.

The gloomy news sent the pound sliding by nearly a cent against the dollar to a new two-and-a-half year low.

It came a week before Chancellor George Osborne announces his spring Budget and led to calls for him to introduce policies to jump-start the economy.

Critics of the Government blamed the manufacturing woes on a slump in demand caused by tough austerity measures that have stifled growth.

“Business has lost all confidence to invest,” said Catherine McKinnell, Labour MP for Newcastle North, who urged Mr Osborne to “pull his head out of the sand and see that his plan is clearly failing”.

But Mr Osborne said the manufacturing sector halved as a share of the British economy when Labour was in office and the Government had taken steps to support manufacturers.

Speaking during Commons Treasury questions, Ms Mc- Kinnell said: “The Chancellor boasts that all is going well for British business but terrible figures out this morning show that manufacturing is down three per cent compared to last year.”

Mr Osborne responded: “The steps we have taken to support manufacturers, to help with investment allowances as I’ve announced, to make sure they have access to those growth parts of the world like China and India – this is all part of rebalancing and rebuilding the British economy.”

Ebac managing director Pamela Petty doubted that an export drive would solve the problem.

She urged the Government to support those manufacturers producing goods for the home market.

“We hear a lot about exporting, such as shipping Rolls-Royces to rich Chinese consumers, but it has not had much of an impact on the trade deficit,” said the boss of the Newton Aycliffe firm, which is investing £7m to become Britain’s only washing machine maker.

She added: “We should concentrate our efforts on making the things we have done well in the past, such as household appliances and textiles, and selling them here in the UK. I believe that our manufacturers can be competitive.

“We import far too much. This isn’t about initiating a Buy British campaign – there needs to be fundamental changes led from the top that give our firms the confidence to invest.”

She said Ebac was now in good shape and investing for the future after it reacted to the threat of cheap, overseas competitors about five years ago.

Manufacturing employers group EEF warned that many firms were holding back production and investment while customers at home and abroad remained jittery.

Chris Williamson, chief economist at Markit, said: “With such a weak start to the year, the economy is facing an increased risk of falling into a triple-dip recession and the much-vaunted rebalancing remains elusive. In fact, recent data suggests the UK is moving in the opposite direction, away from goods production, and is becoming ever-more dependent on consumer spending.”

However, he said a strong performance by the services sector when it reports next week could still be enough to prevent a third recession.

Lee Hopley, chief economist at EEF, said: “The main takeaway from the data so far this year is that much of manufacturing is facing an uphill challenge to grow in a difficult global demand environment.”