Page last updated at 10:06 GMT, Tuesday, 7 April 2009 11:06 UK

Decline in manufacturing 'eases'

Car assembly worker
Manufacturing fell at a slower pace than expected

UK manufacturing output fell for the 12th consecutive month in February, but the rate of decline appears to be easing, official figures have shown.

Output fell 0.9% in February compared with the previous month, the Office for National Statistics (ONS) said. It had fallen by 3% in January.

Separately, the British Chambers of Commerce (BCC) said manufacturing exports had reached 10-year lows.

The BCC also warned that unemployment would peak at 3.2 million next year.

The most recent official data showed unemployment had risen above 2 million.

The fall in February was at the slowest rate in the last six months. Analysts had forecast a steeper drop of 1.5%.

However, output was 13.8% lower than in February 2008 - the biggest annual rate of decline since January 1981.

Going forward we actually see the manufacturing sector outperforming the rest of the economy because of the depreciation in the currency
Amit Kara, UK economist, UBS

The most significant decreases in output came in car production and metal products, the ONS said.

Manufacturers have been suffering as global trade slumps in the economic downturn.

Analysts greeted the data with caution.

"On the face of it [the data is] a little bit better than expected," Mark Miller, economist at HBOS, said.

"But clearly, the business surveys and the Chambers of Commerce survey released recently suggest that the overall mood is extremely downbeat."

Weak pound

Sterling has declined significantly against the dollar and the euro in the last twelve months.

While this is usually seen as good news for exporters as it makes exported goods cheaper for foreign buyers, experts say it is being countered by other factors.

"Even the benefit to UK manufacturers coming from the sharp depreciation in the pound is so far being outweighed by sharply deteriorating domestic demand in key export markets, notably the euro zone and the US," said Howard Archer, chief UK economist at Global Insight.

But others were more optimistic about the longer-term impact of the weaker pound.

"Going forward, we actually see the manufacturing sector outperforming the rest of the economy because of the depreciation in the currency, in what is likely to be an export-led recovery," commented Amit Kara, UK economist at UBS.

'More pain'

The BCC survey warned the recession was "likely to continue for some time".

However, it said one bright spot came in the service sector, where the rate of decline appeared to be slowing.

The group called for corrective action as it said the economy continued to face severe threats.

"The Budget is an opportunity for the government to show business that it is doing everything possible to support them," said David Frost, director general of the BCC.

He said that the results of the BCC's survey suggested that unemployment would peak at 3.2 million in the third quarter of 2010.

"To limit the upsurge in the jobless total, it is vital to slash the regulatory burden on business," he said.

"Although it is encouraging to see improvement in the service sector, there is more pain to come in this downturn."

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