Manufacturing output slump

MANUFACTURING output fell by 0.5 per cent in May, according to official data released yesterday by the Office for National Statistics, reducing the likelihood that the UK economy returned to growth in the second quarter.

The surprise fall – analysts had expected a rise of 0.2 per cent – meant that manufacturing is now 13.1 per cent lower compared to the same period of 2008. April’s data was revised down to show no change rather than the 0.2 per cent previously reported. The broader industrial production index recorded a 1.8 per cent fall in the three months to May, a shrinkage of 12.3 per cent on the previous year.

But economists remained broadly positive. ING’s James Knightley said: “This is a disappointment, but with the manufacturing purchasing managers’ index continuing to rise there is hope that the worst is over for the sector.”

He added that with loose monetary policy and sterling, he believes that the sector can return to positive year-on-year growth by late 2010.

The disappointing data will reinforce belief that the Bank of England will continue its expansionary monetary policy.

Howard Archer at IHS Global Insight said: “It heightens pressure on the Bank of England to increase its quantitative easing programme by a further £25bn to £150bn this Thursday and it could also well ask the chancellor for permission to increase the £150bn ceiling.”