U.K. Manufacturing Jumps Twice as Much as Forecast

U.K. Manufacturing Jumps Twice as Much as Forecast

April 8 (Bloomberg) -- U.K. factory production jumped in February by twice as much as economists forecast to the highest level since 2008, a sign the weakness of the pound is aiding the economic recovery.

Manufacturing output climbed 1.3 percent from the previous month, the Office for National Statistics said today in London. Economists predicted a 0.6 percent gain, according to the median of 22 forecasts in a Bloomberg News survey. The index of factory production rose to 90.1, the highest since December 2008.

The report suggests Britain’s economy has kept up momentum this quarter after escaping the recession at the end of 2009, in time for the election that Prime Minister Gordon Brown called for May 6. The Bank of England will today hold its bond-purchase plan at 200 billion pounds ($303 billion) as officials assess whether the recovery is strong enough to last, economists say.

“With sterling’s weakness being what it was it would be surprising if you didn’t see a pickup in U.K. exports,” David Tinsley, an economist at National Australia Bank in London and a former Bank of England official said in a telephone interview before the report. “We do expect to see an acceleration of growth in manufacturing production this year.”

The pound rose about 0.2 percent against the dollar after the report and traded at $1.5190, down 0.4 percent on the day, as of 9:31 a.m. in London. Sterling has lost about a quarter of its value on a trade-weighted basis since the start of 2007, making exporters’ goods cheaper overseas.

The yield on the benchmark two-year government bond fell 2 basis points today to 1.184 percent.

Bricks, Cement

Of the 13 categories in manufacturing, 11 rose and two fell, the statistics office said. The biggest gains were in non- metallic minerals, which includes cement, clay and bricks, and in electrical and optical equipment. On the year, manufacturing expanded by 1.4 percent, the most since February 2008.

Manufacturing rebounded from a 1 percent drop in January, when the country was gripped by the worst cold snap since 1979. Officials said there was more evidence this month that the performance of factories then was affected by the weather.

Chloride Group Plc, the U.K.’s largest maker of backup power equipment, said yesterday that sales in the year through March increased by 3 percent and performance will be “in line” with forecasts.

Overall industrial production, which includes utilities, mining and quarrying and accounts for 17 percent of the economy, rose 1 percent on the month, the statistics office said. The gain in manufacturing output outweighed declines in all the other categories.

Recession Over

The U.K. economy expanded 0.4 percent in the final three months of 2009, capping the recession at six quarters. The statistics office will release data for the first quarter on April 23.

Confidence about sales at manufacturers fell in the first quarter, the British Chambers of Commerce said in its quarterly survey released yesterday. Service companies’ revenue expectations rose to the highest level since the first three months of 2008, before the onset of the recession.

The Bank of England will keep the benchmark interest rate at a record low of 0.5 percent as well as leaving its asset- purchase plan on hold today, according to all economists surveyed by Bloomberg News. The central bank will announce its decision at noon today in London.

source: bloomberg.com