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Monday, 14 January, 2002, 10:00 GMT
UK manufacturing slumps again
BMW plant at Cowley
Still no sign of an upturn
UK manufacturing output fell faster than at any time since 1996 in December, spreading more economic gloom.

Manufacturing production declined by 0.7% from the previous month, and by 5.4% compared to December 2000, the Office for National Statistics said.

Analysts, who had been expecting more moderate decreases of 0.4% and 4.9% respectively, said the numbers suggest that the UK economy still faces recessionary risks.

"The 0.7% slump in manufacturing output clearly confirms the recessionary state of the sector" said Jeremy Hawkins, UK economist at the Bank of America.

Slowdown to spread?

UK manufacturing sector output has been falling since the middle of last year, pressured by a dip in export demand due to the global economic slowdown and the euro's weakness against the pound.

December '01 manufacturing data
Output down by 5.4% on year
Factory gate prices down by 1.2% on year
Input prices down by 6.6% on year

The sector's flagging performance contrasts with that of the less internationally-exposed and economically dominant service sector, where growth rates have declined without turning negative.

The service sector's resilience enabled the UK economy as a whole to outperform most other industrialised countries last year. It is expected to do so again in 2002.

However, economists fear that rising manufacturing sector unemployment could dent consumer demand, dragging the service sector into recession in turn.

Since the service sector accounts for four fifths of UK employment, and two thirds of its economic output, this would make a full-blown economic contraction a near-certainty.

Imbalance fears

The Bank of England has cut interest rates by two percentage points since February last year to a 37-year low of 4% in a bid to stimulate the economy, but this has had a limited impact on manufacturing investment.

The cheaper borrowing costs have, however, stoked a near-record boom in consumer spending, raising concerns that the lack of equilibrium in the UK economy may lead to a painful correction in the coming months.

"If the government do not act soon to correct this imbalance Labour is set to turn its economic record to duts," said the Liberal Democrats' shadow Chancellor Matthew Taylor on Monday.

He urged the government to "act on the problems caused by the uncompetitive level of the pound."

Prices and costs lower

Separate figures out on Monday show that manufacturing profit margins are also under severe pressure, with the average price of goods leaving UK factories down by 1.2% on the year in December.

There was some relief in the form of lower raw material and energy prices, which were down by 0.7% from November and by 6.6% compared with December 2000.

However, the decline in input costs was due mainly to a slump in crude oil prices, which fell by 4.7% on the month.

See also:

10 Sep 01 | Business
UK manufacturers' prices steady
06 Aug 01 | Business
UK manufacturing in recession
06 Aug 01 | Business
Q&A: The manufacturing recession
03 Aug 01 | Business
Gloom spreads to UK service sector
07 Aug 01 | Business
CBI: Manufacturers' woe worsens
10 Sep 01 | Business
CBI says DTI is too weak
17 Sep 01 | Business
US and ECB cut rates to stem panic
26 Sep 01 | Business
US economy in freefall
26 Sep 01 | Business
Aviation firms axe 26,000 jobs
03 Jan 02 | Business
'Bumpier ride' ahead for UK economy
20 Dec 01 | Business
UK economy set to outperform
03 Dec 01 | Business
Gloom deepens in UK economy
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