UK industrial production declines for second month

UK industrial production and manufacturing output both unexpectedly worsened in February, according to official figures on Friday, their second consecutive month in decline.

The Office for National Statistics said industrial production fell 0.7% month-on-month, on top of a revised 0.3% decline the month before and missing the consensus forecast for a 0.2% rise.

Year on year this meant growth slowed to 2.8%, versus the 3.7% expected rise from the revised 3.3% rate in January.

Manufacturing production slipped 0.1% month-on-month, which was an improvement on the 1% fall the previous month but some way from the 0.3% increase the market was expecting.

Compared to last year, manufacturing production in February was up 3.3%, having been predicted to rise 3.9% after a 2.6% gain in January.

The construction sector was also down, the ONS revealed, with new work off 3.3% month-to-month in February, the biggest drop since June 2012, and private housing work down by 2.8%.

The soft data revived the Bank of England (BoE) doves and backed the idea that the inflation alone may not be a sufficient reason to raise the interest rates in the UK, said analyst Ipek Ozkardeskaya at London Capital Group, noting that the pound was quickly sold off to $1.2430.

The disappointing package of data fuels suspicion that GDP growth slowed markedly, largely due to consumers becoming more cautious, said Howard Archer at IHS Markit.

"We suspect UK GDP growth in the first quarter of 2017 slowed to 0.4% quarter-on-quarter from 0.7% quarter-on-quarter in the fourth quarter of 2016 – this would be the weakest growth rate since the first quarter of 2014."

Capital Economics said the data on industrial production and construction supported over evidence that the economy has lost a little momentum in Q1. "But growth is likely to have remained fairly solid."

Construction has been one of the biggest losers from the Brexit vote, said economist Sam Tombs at Pantheon Economics, as well as the industrial slip.

"Manufacturers have responded to uncertainty about the UK’s future trade links by reducing investment sharply. Output, however, fell in all major sectors; commercial, infrastructure and public sector work."