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Tuesday, 18 February, 2003, 21:28 GMT
UK industry suffers sharp decline
Britain's manufacturing industry has reported its worst fall in output in more than 10 years, heigtening fears over the health of the UK economy.

It is a sign of how worried they are about the economy

Factory production fell by 4% in 2002, the largest annual slump since 1991, according to figures from the Office for National Statistics.

The statistics paint a worse than expected picture about the state of the UK economy.

And they are likely to have been a key factor in Thursday's decision by the Bank of England to cut interest rates by a quarter of one percentage point to 3.75%.

Britain's manufacturing industry is going through its worst recession since the early 1990s, but consumer spending has so far shielded the wider economy from shrinking.

Insolvencies

The Bank's Monetary Policy Committee would have seen the data, which showed that November's rise in output was little more than a blip.

The Chancellor's lucky streak is running out

Matthew Taylor, Liberal Democrats
Cutting interest rates in one way of trying to shore up the struggling manufacturing sector.

Meanwhile, separate figures released on Friday showed a 15% increase in company insolvencies in the fourth quarter of 2002, compared to the same period a year earlier.

The figures confirm the scale of the slowdown, with 4,323 companies going bust in the fourth quarter of 2002, an increase of 11% on the previous quarter.

'Downward direction'

Simon Rubenstein, chief economist at investment bank Gerrard, said Thursday's manufacturing figures proved the sector was deep in recession.

It just confirms that the manufacturing sector is suffering

George Buckley, Deutsche Bank
"While the year-on-year rate of decline may be decelerating, the trend in manufacturing is still very much in a downward direction.

"By any standards that should be sufficient to conclude that the industrial part of the economy remains firmly locked in recession," he said.

He said the figures "provided further justification" for Thursday's interest rate cut.

But with signs the property market is stagnating and the worsening situation in the Gulf, "the "authorities will be forced to take further steps to bolster the economy over the coming months."

Job cuts

Manufacturing has borne the brunt of the slowdown in world trade and is believed to be shedding about 10,000 jobs a month.

The sector makes up around 20% of the British economy.

Friday's figures show industrial output was down 0.9% from the third quarter of 2002, and 1.5% down on the third quarter of 2001.

The broader measure of industrial production, which includes North Sea oil production and utility output, showed a monthly fall of 0.2% in December and stood 1.4% lower than the same period a year earlier.

These figures were also worse than expected.

December's performance was being partly blamed on a drop in output at car factories.

The production of equipment and machinery also fell a hefty 1.3% although there were signs of recovery in the electrical and optical sector, which includes computers.

Global demand

George Buckley, an economist at Deutsche Bank in London, said: "It just confirms that the manufacturing sector is suffering, not only from a long-term structural decline, but also from the cyclical weakness there's been in global demand recently."

Liberal Democrat treasury spokesman Matthew Taylor said: "There is clearly a world of difference between the optimism of Gordon Brown and the pessimism of all the economic indicators."

He added: "The Chancellor's lucky streak is running out."

Euro call

Steve Radley, chief economist of the engineering employers federation, said the MPC had been " wise to make its pre-emptive move" on interest rates.

But John Edmonds, general secretary of the GMB union, said prospects for manufacturers would not improve until the UK joined the single currency.

"This comes as no surprise, as January saw almost 8,000 manufacturing job losses announced.

"We will continue to see this level of job loss until we take decisive action on the euro and join at a realistic exchange rate as soon as possible."

Financial markets, still reeling from Thursday's surprise interest rate cut, showed little reaction to the data.

At midday, the FTSE 100 share index was only mildly higher, up 16 points at 3,613 while the pound was steady on the currency markets at around $1.629.

 WATCH/LISTEN
 ON THIS STORY
The BBC's Hugh Pym
"It's been a ghastly year for manufacturing"
Will the UK economy feel the impact of the US slowdown?

Economic indicators

Analysis

UK rate decisions
See also:

18 Feb 03 | Business
06 Feb 03 | Business
22 Jan 03 | Business
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