Manufacturing sector ‘on brink of recession’

10:46am Wednesday 10th September 2008

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THE UK manufacturing sector was last night said to be on the brink of recession, after official data showed output fell for the fifth straight month in July.

The Office for National Statistics (ONS) said manufacturing output dropped 0.2 per cent during the month, marginally worse than the 0.1 per cent drop expected by analysts. The sector’s activity was also 1.4 per cent lower compared to a year ago.

Paul Dales, of Capital Economics, said the sector needed to show growth of 0.7 per cent both last month and this month for UK manufacturing to avoid a technical recession, as defined by consecutive quarters of falling output.

He said: “The manufacturing sector is leading the rest of the economy into recession.

“Overall, this data lends further support to our view that the whole economy will soon enter a recession and contract by around 0.2 per cent next year.”

The monthly fall in manufacturing output was driven by a contraction in production of optical and electrical equipment, the ONS said, down 1.3 per cent.

During the three months to July, the ONS also reported a 2.4 per cent drop in food, drink and tobacco manufacturing output. Soaring raw material costs have seen food inflation reach record levels in recent months, piling pressure on household budgets.

Overall industrial output, which includes the manufacturing sector as well as industries such as mining and energy supply, fell 0.4 per cent in July, again more than expected. That took the annual industrial decline to 1.9 per cent.

The ONS said the contraction was driven by oil rigs reducing oil and gas output.