Fears mount over economic slowdown after surprise manufacturing fall

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Britain’s factories suffered an unexpected drop in output during February, marking the first fall for nearly a year and fuelling fears of a slowdown in the wider economy.

The Office for National Statistics (ONS) said that manufacturing output dropped 0.2% month on month in February, while a downward revision to previous data showed it also stagnated in January.

Official figures also revealed another sharp drop in the construction sector, with output down by 1.6% month on month in February and 3% lower than a year earlier, marking the largest annual fall since March 2013.

Experts said the data added to signs that the economy suffered in a snow-hit start to the year, with growth likely to have slowed from the 0.4% seen at the end of 2017.

Howard Archer, chief economic adviser at the EY Item Club, said the ONS data “fuels suspicion that GDP growth likely slowed to 0.3% quarter-on-quarter in the first quarter – especially as survey evidence points to economic activity suffering a marked hit in March from the severe weather”.

While manufacturing has shown little direct hit from the snow in February and March, recent industry surveys have pointed to a marked impact on the powerhouse services sector as retail sales suffered, as well as construction work.

The Bank of England warned last month that its early estimates of the impact of the Beast from the East pointed to a slowdown to 0.3% in the first quarter.

But Bank policymakers stressed that any impact was likely to be temporary.

The data from the ONS showed that the decline in monthly manufacturing output was the first since March 2017 and confounded expectations for a small rise.

Overall industrial output – which accounts for around 14% of UK gross domestic product (GDP) – edged 0.1% higher in February.

The construction data also points to a dismal start to the year for the sector, coming after a 3.1% plunge in output during January.

Economists had expected construction output to bounce back in February.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said that, while the snow took its toll, the construction sector downturn “began a long time before the snow hit”.

“Output has trended down since the summer and fell by a hefty 3.1% month to month in January, before the bad weather hit,” he said.

He is forecasting a sharper slowdown in wider GDP to 0.2%.

The Bank of England has been widely expected to raise interest rates as soon as May, but the first quarter woes might stay its hand.

Mr Tombs added that a sharp slowdown in the economy would boost the case for the Bank to be “cautious and to hold back from raising interest rates in May”.

But there was some cheer for the economy in the latest raft of official figures, which revealed that the UK’s trade deficit narrowed to £10.2 billion in February from £12.2 billion in January, thanks to a sharp drop in imports.

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