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UK industrial output enjoys biggest surge in 8 years

LONDON - British industrial output expanded in March at its fastest pace in almost eight years, boosting hopes the recovery is gaining traction and suggesting first-quarter output was stronger than first thought.

Industrial output rose 2.0 percent on the month in March, more than six times faster than the consensus forecast and its fastest monthly pace since July 2002. On the year, output was also 2.0 percent higher, its best showing since March 2004.

The Office for National Statistics said Tuesday’s data would add 0.1 percentage points to Q1 GDP growth, other things being equal.

“It’s a blistering rise on the month, but we would warn that the figures have been volatile and the timing of Easter can always throw a spanner into the seasonal adjustment,” said Philip Shaw, an economist at Investec.

Preliminary data showed Britain’s economy grew 0.2 percent in the first quarter, a pace that disappointed investors after survey evidence had suggested a sharp recovery from snow-related disruption at the start of the year.

Fourth-quarter GDP data was also subject to several upward revisions, from a preliminary reading of 0.1 percent to a final reading of 0.4 percent. Analysts said a repeat performance would do the reputation of the statistics office no favours.

“This should be embarrassing to the ONS,” said Neville Hill at Credit Suisse. “Their recent initial estimates of GDP have been woefully, and predictably, wrong in the same direction.”

Political shadow

The pound, which has come under pressure from Britain’s inconclusive election result, perked up after the data which topped all forecasts in a Reuters poll.

But its respite was brief as attention switched back to the scramble among Britain’s main political parties to form a new government.

Prime Minister Gordon Brown said late on Monday he would step aside, a move that could entice the Liberal Democrats into a pact with his Labour Party. Brown’s move knocked investors’ hopes of a speedy alliance between the LibDems and the Conservatives, who won most seats in Thursday’s election but fell short of an overall majority.

The statistics office said there were signs the pound’s recent weakness had boosted the manufacturers’ export performance, particularly in the transport and metals sectors.

Growth in manufacturing was strong across the board with 12 of the 13 subsectors recording growth on the month. Manufacturing output as a whole rose 2.3 percent on the month, its fastest monthly rate since July 2002. That took the annual rate to 3.3 percent, its highest since October 2006.

“This is a really spectacular performance by the manufacturing sector, which is a real shot in the arm for the economy,” said Howard Archer, economist at IHS Global Insight.

Policymakers have been hoping the weakness of the pound would give a boost to Britain’s economy, which is emerging from its deepest recession since World War Two.

Two surveys overnight painted a mixed picture. The Royal Institution of Chartered Surveyors’ reported its house price balance rose more than expected to +17 from +9 in April but the British Retail Consortium said retail sales suffered their biggest fall since December 2008, due partly to the timing of Easter holidays.