Shock fall in February factory output endangers recovery

British factory output suffered its biggest monthly fall in almost a year in February, confounding upbeat private-sector surveys and casting doubt on the health of the country's economic recovery.

The economy shrank at the end of 2011, ensuring the Bank of England bolstered its quantitative easing gilt purchases in February, a decision it looks set to stick with when it concludes its April policy meeting later on Thursday.

Economic news since the start of the year had been better, and the purchasing managers' indices (PMIs) pointed to first-quarter growth of as much as 0.5 percent.

MG6 cars sit on the production line at the MG Longbridge factory
 in Birmingham, central England April 13, 2011. REUTERS/Darren Staples

However, the Office for National Statistics said that manufacturing output slumped by 1.0 percent in February after January's figures were revised downwards to show a drop of 0.3 percent, giving an annual decline of 1.4 percent.

This is much worse than economists' forecasts of an increase of 0.1 percent for both measures, and gives the lowest total amount of factory output since July 2010. The fall in factory output was the biggest monthly drop since April 2011, when an extra public holiday disrupted activity.

Cold weather in February after a mild December and January boosted both oil and gas production and electricity generation, lifting the broader industrial output measure to show monthly growth of 0.4 percent - roughly in line with forecasts.

Recent private-sector surveys had shown a strengthening in the manufacturing sector. March's factory PMI rose to a 10-month high after suggesting modest growth in February, while the British Chambers of Commerce first-quarter survey showed the strongest growth in factory orders and sales since Q2 2011.

Manufacturing output in the three months to February was up 0.2 percent, its biggest rise since July 2011, helped by a strong December.

Oil and gas output jumped by 4.6 percent in February - its biggest rise since March 2010 - but is still 10.7 percent down on a year ago. Output is likely to continue to be weak, after a gas leak at a North Sea oil platform operated by Total last week that has caused significant shutdowns and may take months to fix.