Biggest slump in manufacturing output for 35 years

Manufacturers endured their biggest quarterly slump in output for 35 years in the three months to December, official figures have revealed.

Industry output in the final quarter of 2008 was 5.1 per cent below the July to September period - the worst since 1974, according to the Office for National Statistics (ONS).

The figures also showed a 2.2 per cent fall in output in December on the previous month among manufacturers – representing a tenth successive month of decline in the worst run for the sector since 1980.

The December fall was even worse than already pessimistic predictions. Jonathan Loynes, of Capital Economics, said: "The figures maintain the picture of unrelenting gloom in the manufacturing sector. The real worry, though, is that the various surveys suggest that things are set to get even worse over the coming months, with no signs at all that the drop in the exchange rate is yet boosting manufacturers' export order books."

The biggest quarter-on-quarter falls were in metal processing and manufacturing and transport equipment, which includes the crisis-hit car industry.

The pressure on the sector was also underlined by a 1.5 per cent rise in input costs for manufacturers in January - the first such increase since June 2008. This was driven by a 9 per cent rise in crude oil costs - the biggest monthly gain since last May - while above-average demand in cold winter weather also lifted gas prices.

The higher input costs lead to a surprise 0.1 per cent rise in factory gate prices during January, breaking a recent trend of falling prices as recession grips.

"The weakness of demand suggests that producers' margins are set for a very tight squeeze," Loynes added.

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