UK industrial output chalks up biggest fall in two years

British industrial output recorded its biggest annual fall in two and a half years in February, official data showed on Friday, confirming industry surveys showing a marked slowdown at the start of 2016 as the global outlook darkened.

Britain's trade gap was also much wider than expected that month as the country sucked in a record amount of imports from the European Union.

Industrial output fell 0.3 per cent month-on-month in February to give a 0.5 per cent fall on the year, its biggest drop since August 2013, the Office for National Statistics said.

Economists polled by Reuters had expected it to edge up by 0.1 per cent on the month and hold steady on the year. Large businesses have reported holding off on investment plans in the run-up to Britain’s June 23rd referendum on European Union membership, and China’s slowdown has depressed manufacturers’ sentiment globally.

Output in manufacturing fell by 1.1 per cent on the month and dropped 1.8 per cent on the year, again a sharper fall than economists had expected and the biggest decline since July 2013. Looking at the three months to February, which gives a better sense of the underlying trend in what is often volatile data, industrial output contracted at its sharpest pace in over three years, shrinking by 1.5 per cent.

A closely watched survey by financial data company Markit had earlier pointed to the slowest growth in nearly three years in February, while the Confederation of British Industry reported the biggest first-quarter drop in output since 2009.

Sterling, which manufacturers previously blamed for weak exports, has fallen since the start of the year on Brexit worries and a reduced chance of Bank of England rate rises, and is now its lowest against major currencies in over two years. Oil prices have also bounced off 12-year lows plumbed in January, though both developments are likely too recent to offer much of a boost to manufacturers and North Sea oil producers.

Separate figures from the ONS on Friday showed that Britain’s trade deficit in goods narrowed in February to £12.0 billion after January’s reading was sharply revised up to £12.2 billion . February’s reading was far above economists’ forecasts for it to narrow slightly to £10.2 billion.

The overall trade deficit - which includes Britain’s large surplus in services trade - narrowed to £4.8 billion from £5.2 billion. The country’s goods trade deficit with the rest of the EU hit a record high of £8.6 billion, due to a record sum of imports in February. Britain recorded a record current account deficit of £32.6 billion or 7.0 per cent of GDP in the last three months of 2015, potentially increasing sterling’s vulnerability if Britain votes to leave the EU.

But underperformance by British investments in Europe, rather than the persistent trade gap, is the main reason for the widening deficit, economists say.

Reuters