British factory output rebounds

British factory output rebounded more than expected in January after a snow-hit December, but the sector's strong start to 2011 is unlikely to be enough to trigger an early rate hike.

Although the figures appear to confirm survey evidence that British industry is on track to help the economy bounce back from a shock 0.6 per cent slump at the end of last year, it accounts for less than a fifth of total economic output.

Analysts said that the larger, services sector holds the key to the outlook for the recovery, and here there are already signs that government austerity measures are having an impact.

The Office for National Statistics (ONS) said manufacturing output rose 1 per cent in January, more than reversing a 0.1 per cent fall in December, and the strongest rate of growth since March 2010. Analysts had expected an increase of 0.8 per cent.

Output in the broader industrial sector also rose slightly more than expected, by 0.5 per cent on the month, but was tempered by a 6.2 per cent fall in utilities output - the sharpest in almost 2 years - which reversed a cold-weather boost in December.

The ONS said 10 of the 13 manufacturing sub-sectors recorded growth on the month and one of the main drivers was an increase in non-metallic mineral products - mainly building materials - which posted a 9.9 per cent rise after a sharp drop in December. Chemicals and man-made fibres and electrical and optical equipment also made strong contributions to monthly growth.

Today's data suggest manufacturing remains on track to be one of the few bright spots in Britain's economy, benefiting from a past fall in the pound and strengthening demand from other countries. Manufacturing PMI surveys so far this year have suggested activity has been growing at its fastest pace in at least 16 years.

The government and Bank of England are relying on strong export-driven growth in manufacturing in 2011 to fill the gap created by cuts in government spending and likely belt-tightening by consumers, which is putting pressure on the bigger services sector.

Reuters