Britain's trade deficit in goods narrowed more than expected thanks to a 4.9 per cent increase in exports

Factory output grows at fastest pace in four years

Factory output in the UK grew at its fastest pace since 2010 during the first quarter of 2014 and the trade deficit narrowed.

The Government’s Office for National Statistics said manufacturing output grew by 1.4 per cent in the first three months of the year, up from 0.6 per cent in the last three months of 2013 – the best calendar quarter since the second quarter of 2010 and the strongest growth for any three month period since October 2010.

Britain's trade deficit in goods with the rest of the world also narrowed more than expected, sinking to £8.5bn, its lowest since December thanks to a 4.9 per cent increase in exports, and the overall deficit in both goods and services narrowed from £1.7bn in February to £1.3bn in March thanks in part to a surplus of £7.2bn on services.

But monthly changes in factory and industrial output growth were only a shade better than forecast. Industrial output dropped 0.1 per cent on the month in March after a 0.8 per cent rise in February, while factory output grew by 0.5 per cent, building on February's 1 per cent rise.

Despite the recent pick up, manufacturing has lagged behind other sectors since the financial crisis, and is still 7.6 per cent below its level in the first quarter of 2008, when overall economic output peaked.

And as monthly trade figures are erratic, the British Chambers of Commerce also warned that the first quarter of 2014 showed only a marginal narrowing in the deficit compared with the previous quarter and its chief economist David Kern said the pace of change was still painfully slow.

He added: "We need to encourage our existing exporters into new markets, help other businesses export for the first time, and ensure that support for export, both at home and around the world, is resourced for the long term."

The growth in factory output in the first quarter of 2014 was faster than the 1.3 per cent pencilled into an initial estimate of gross domestic product released last month, but a steep fall in electricity and gas supply dragged down the broader industrial output measure.

Industrial output overall expanded by 0.7 per cent in the first three months of 2014, up from 0.5 per cent in the last three months of 2013 but slower than the 0.8 per cent estimate in last month's GDP data.

Today's manufacturing figures beat City expectations but are unlikely to be sufficient to cause a revision to ONS estimates that overall GDP grew by 0.8 per cent in the first quarter.

Construction grew by 0.6 per cent in the first quarter of 2014, twice as fast as assumed in the GDP estimate, and in March was 6.4 per cent higher on a year earlier – its strongest annual rise in six months and one driven by private housing.

But like manufacturing, construction is recovering from a low base and output is still more than 12 per cent below its pre-crisis peak. By contrast, overall GDP is forecast to return to pre-crisis levels in the current quarter.

The Bank of England is due to publish its latest forecasts for economic output and inflation in a quarterly economic report on Wednesday, but Markit chief economist Chris Williamson said the Bank is unlikely to increase interest rates just yet.

He said: "Policymakers will continue to tolerate the strong recoveries being seen in sectors such as manufacturing and construction without hiking interest rates, providing inflation remains low."

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