More QE on the cards after ‘awful’ figures from sector

Manufacturing fell 1.5 per cent month-on-month in January. Economists said this increases the likelihood of Britain falling into a triple-dip recession after the economy contracted by 0.3 per cent in the final quarter of 2012.

The wider measure of industrial production, which includes energy production and mining, sank 1.2 per cent in January, wiping out gains in December.

The fall in manufacturing, which makes up more than 12 per cent of the economy, was the steepest since last June, according to the Office for National Statistics.

The pound fell to a two-and-a-half year low against the dollar and Government bonds rallied over the expectation of more stimulus from the BoE through quantitative easing.

IHS Global Insight economist Howard Archer said: “The manufacturing figures are awful, even if it is possible that the snow had more of a negative impact than the Office for National Statistics indicate, and are a real blow to first quarter growth pros- pects.

“A rebound in manufacturing output in December and some reasonable survey evidence for January had lifted hopes that the manufacturing sector could be emerging from a torrid time but the January output figures and a poor purchasing managers’ (PMI) survey for February indicate that manufacturers are still finding life very tough.”

Other factors behind the fall included the closure of the North Sea Schiehallion oil platform, which drove a 4.3 per cent slide in oil and gas output.

While it is still possible the services sector could rescue the UK economy this quarter, recent PMI figures showed manufacturing output contracted in February and employment expectations are bleak.

Chris Williamson, economist at Markit, added: “The data will pile more pressure on the Bank of England, to inject more stimulus into the economy at its next policy meeting, and on the Chancellor to accept more needs to be done to boost growth in next week’s Budget.

“With such a weak start to the year, the economy is facing an increased risk of falling into a triple-dip recession.”

Andy Tuscher, Yorkshire director for the EEF, said “much of manufacturing is facing an uphill challenge to grow in a difficult global demand environment”.