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U.K. Industrial Output Drops; Factory Gate Inflation Accelerates

U.K. Industrial Output Drops; Factory Gate Inflation Accelerates

British industrial activity unexpectedly declined in January denting hopes of a recovery in the first quarter. Adding to concerns, producer price inflation accelerated in February on higher oil prices.

Production declined 0.4 percent month-on-month in January, erasing December's 0.4 percent gain, the Office for National Statistics said Friday. The decrease was in contrast to an expected 0.3 percent rise.

At the same time, the increase in manufacturing output eased to 0.1 percent from 1.1 percent in December. Economists had expected the rate to ease to 0.3 percent.

Separate data from the ONS showed an acceleration in output price inflation in February. Despite a fall in demand, manufacturers managed to raise prices of their products.

Output price inflation came in at 4.1 percent in February, slightly bigger than the 4 percent logged in the previous month. The rate was slightly up from the expected 3.9 percent.

On a monthly basis, the output price index rose 0.6 per cent compared to expectations for a 0.3 percent rise. The statistical office said that this was the largest monthly increase since April 2011, when the index rose 1.1 percent.

In January, industrial production declined for the eleventh consecutive month on a yearly basis. Output dipped 3.8 percent from a year ago, after logging a 3.1 percent drop in December.

Meanwhile, manufacturing output grew 0.3 percent, slightly faster than the 0.2 percent rise forecast by economists. Nonetheless, the rate of increase slowed from 0.9 percent in the prior month. There were decreases in the mining and quarrying, and energy sectors.

Year-on-year, the core output price index, that excludes food, beverages, tobacco and petroleum rose 3 percent, faster than January's 2.4 percent increase. Economists were looking for a 2.5 percent rise.

Input price inflation accelerated to 7.3 percent from 6.6 percent in the preceding month. Economists had expected a rise of 7.1 percent. Month-on-month, input costs rose 2.1 percent, faster than the expected 1 percent rise.

Higher output prices in February fuels concern that high oil prices will prevent consumer price inflation from falling back as quickly or as far as had been hoped for, IHS Global Insight Chief UK economist Howard Archer said.

Moreover, he said sticky inflation would maintain the squeeze on consumers' purchasing power and make it harder for the Bank of England to do more quantitative easing should the economy continue to struggle.

According to results of survey conducted by the Bank of England and GfK NOP, released today Britons' inflation expectations for the year ahead eased to 3.5 percent in February from 4.1 percent seen in November.

by RTT Staff Writer

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