Manufacturing output falls at fastest pace for six months

Manufacturing output falls at fastest pace for six months

Manufacturing output unexpectedly fell in March at its fastest pace for six months as a slump in car production led a broad-based slowdown, the Office for National Statistics said today.

Manufacturing output fell 0.5% on the month, the worst reading since September last year and worse than the City had expected.

"It is another soft economic reading for March and suggests the slowing in the economy is gaining traction," said George Buckley, chief UK economist at Deutsche Bank.

The figures follow hot on the heels of yesterday's service sector report from the Chartered Institute of Purchasing and Supply which showed growth in that part of the economy was at a five-year low.

The pound fell and interest rate futures rose after the manufacturing data as markets revised their opinion that the Bank of England would wait until June to cut interest rates again.

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The Bank's monetary policy committee begins its latest monthly meeting today and will make its announcement at midday tomorrow. If it does cut rates, it will be the second consecutive month to see a reduction and the first back-to-back cut since the aftermath of the 9/11 terrorist attacks seven years ago.

The ONS said, though, that the trend in manufacturing remained positive and the latest decline took output back to more normal levels after stronger growth at the beginning of the year. Surveys, however, have been more downbeat.

Industrial production also fell 0.5%, more than the 0.1% decline expected. That was the biggest decline since February 2007.

Traders, however, remain nervous about a surprise cut this week, particularly after very weak service sector data on Tuesday. Tensions are likely to be heightened by the bigger-than-expected decline in manufacturing and industrial production.

"There has been a last minute flurry of disappointing UK economic data - prompting the obvious question - could the MPC cut tomorrow? We know from recent MPC minutes, the committee tend to be reluctant to deliver back-to-back rate moves. One reason for that is the fear that it will cause the market to extrapolate the move and price in even deeper cuts. We doubt the MPC wants the market to price in more aggressive easing," said Alan Clarke, economist at BNP Paribas.

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