Surprise slump in May factory output

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BRITISH factory output suffered an unexpected slump in May, echoing a similar decline in German industrial production, according to official data on Tuesday that raises questions about the pace of the country’s recovery.

Factory output dropped by 1.3 per cent in May, its biggest fall since January 2013 and in sharp contrast to economists’ forecasts for a solid 0.4 per cent increase, the Office for National Statistics (ONS) said.

The decline comes after the sector recorded its strongest growth in nearly four years in the three months to April, and goes against the grain of robust private-sector surveys and a run of more positive surprises from data.

The Bank of England forecast in May that Britain’s red-hot economic growth would start to slow in the second half of this year, though more recently Governor Mark Carney said he had seen little sign that this was about to happen.

Sterling weakened and Government bond prices extended gains on the news, on bets that this could slightly reduce the chance of a first Bank of England rate rise this year. But economists said it was too soon to draw big conclusions.

“Given the strength of the business surveys, I would really view this an aberration,” said Societe Generale economist Brian Hilliard. He added that he expected a sharp reversal in the data next month and was not changing his forecast for second-quarter growth.

The ONS had no specific explanation for the decline, beyond saying that it occurred across a swathe of manufacturing sectors.