An employee looks at components on an electronic circuit board (ECB) at the Ebac Ltd. factory in Newton Aycliffe, U.K. (Photographer: Matthew Lloyd/Bloomberg)

U.K. Factory Output Falls for First Time in Almost a Year

(Bloomberg) -- U.K. manufacturing shrank for the first time in 11 months in February, led by output of machinery and equipment.

The drop brings to an end an unprecedented run for manufacturers that helped to underpin the economy as a squeeze from rising prices took its toll on consumer spending.

U.K. Factory Output Falls for First Time in Almost a Year

Factory output declined 0.2 percent -- missing expectations for a 0.2 percent increase -- after stagnating in January. Overall industrial production rose a smaller-than-forecast 0.1 percent, with the growth largely due to below-average temperatures boosting demand for energy.

Samuel Tombs at Pantheon Macroceconomics expects a stronger production figure in March, but says it won’t be enough to offset weakness in retail and consumer activity and construction, all of which took a hit from the “Beast from the East’’ snowstorm.

GDP growth may be weaker in the first quarter than the 0.3 percent predicted by the Bank of England, which casts doubt on whether a May interest-rate increase is as likely as market pricing suggests.

The National Institute of Economic and Social Research said Wednesday it was forecasting an expansion of just 0.2 percent, half the pace of the fourth quarter, with the severe weather likely to have hurt “all major sectors of the economy.”

The pound pared its advance against the dollar after the ONS’s report, and was at $1.4190 as of 12:10 p.m. London time, little changed on the day.

Seven out of 13 manufacturing sectors saw output decline, with machinery and equipment dropping 3.9 percent after a strong January. In the latest three months, factory output rose 0.6 percent, the least since July.

There was no anecdotal evidence that snow and icy conditions affected production in February, the ONS said, though the freeze that engulfed the country only began late in the month. It may, however, have disrupted building projects.

Construction Woes

Construction output fell 1.6 percent, driven by infrastructure, private industrial work and repairs. It followed a 3.1 percent drop in January, when work was halted at a number of sites following the collapse of contractor Carillion Plc.

The figures suggest the first three months of 2018 displayed a similar pattern to the end of 2017, with industrial output increasing and building work shrinking for a second consecutive quarter.

Growth may get a boost from trade after the deficit in goods and services narrowed much more than forecast to 965 million pounds ($1.37 billion) in February.

A fall in the value of exports was more than offset by an even greater decline in imports, much of it due to machinery and transport equipment and fuel.

The first-quarter shortfall will come in below the 7.6 billion pounds posted in the fourth quarter if March sees a deficit of less than 3.7 billion pounds.

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