Industrial output fall fuels recession fears

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Industrial and construction output suffered a shock fall in January, raising the risk the economy will slide back into recession at a time that rising oil prices are posing a dilemma for policymakers.

Yesterday’s data from the Office for National Statistics will put extra pressure on Chancellor George Osborne to find measures to boost growth as he prepares to unveil his 2012 budget on March 21

Industrial output shrank by 0.4 per cent in January, wiping out December’s gains and confounding economists’ forecasts for a 0.3 per cent rise.

None of the economists polled by Reuters had expected a fall this month after a string of upbeat private-sector surveys, and the annual decline of 3.8 per cent was the biggest in more than two years.

“Today’s disappointing industrial figures... suggest that the manufacturing recovery is already starting to lose steam,” said Capital Economics’ Samuel Tombs.

Other data this week showed Italian industrial output fell 2.5 per cent in January, while France and Germany reported growth of 0.2 per cent and 1.6 per cent respectively – reflecting the contrasting fortunes of the eurozone’s three biggest economies.

The fall in production was driven by a slump in oil and gas output. The energy sector was persistently weak in 2011.