Industrial production fell by more than expected in March, casting a shadow on the economy’s brightest sector.
Oil and gas output plunged 7.8 per cent amid maintenance shutdowns. This was its lowest level since May 1989 and pushed overall industrial production down by 1.2 per cent on the month, the Office for National Statistics said.
Manufacturing, which excludes oil, gas and utilities activity, stalled in the month, defying analysts’ predictions for a 0.6 per cent increase.
The dismal figures, described by one analyst as “bitterly disappointing”, further reduce the likelihood of an interest rate increase by the Bank of England’s Monetary Policy Committee today and will dampen hopes that manufacturing can lead Britain’s recovery.
Alan Clarke, UK economist at BNP Paribas, said: “In the context of GDP, this could have a significant drag on the first-quarter figure. Clearly there could be a bounceback in the March data as the fall in the extraction component reverses. However, past experience of such [North Sea] maintenance work has shown it can take longer than one month to rebound. In turn, there is a risk that sluggish first-quarter GDP prevents the MPC from raising Bank rate as soon as the May meeting.”
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The figures add to the mixed picture emerging about Britain’s recovery. Some industry surveys have pointed to blockbuster orders for manufacturers after the slump in sterling, but the sector is being held back by poor levels of demand in their home markets.
In its monthly GDP forecast, the National Institute of Economic and Social Research said yesterday that the economy grew by 0.7 per cent in the first quarter of the year after contracting by 0.5 per cent in the final three months of 2010.
This was just below the Office for Budget Responsibility’s forecast of 0.8 per cent. Last month the OBR revised it growth forecast for 2011 down to 1.7 per cent, from 2.1 per cent.
The slump in North Sea activity predates the Chancellor’s £2 billion Budget raid on the industry, but it will heighten concerns about the impact of the tax on the oil sector. However, the profitability of the offshore oil and gas industry has risen to 43.8 per cent in the final quarter of 2010, according to ONS figures out yesterday. The net rate of return for this sector for last year as a whole was 40.7 per cent.