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Poor Manufacturing PPI Ecostats Could Betray UK Economic Progress

The recent revival within the UK economy was struck a damaging blow this morning as a raft of ecostats from the Office of National Statistics came in below analysts’ expectations. Industrial Output headlined the list of poor performance that could push the UK back into recession.

Industrial Production fell from 0.4% growth in December to 0.4% contraction in January, whereas a positive 0.3% growth had been anticipated. This marked a year on year decline of -3.8% for Industrial Production. A decline in output for energy supply, mining and quarrying were the main causes.

Manufacturing Production suffered a similarly negative drop in demand, with January’s figure falling 1% short of December’s at 0.1%. The annual figure of 0.3% was also considerably lower than the previous year’s 0.9%. Manufacturing of food, beverages, tobacco, rubber and plastic products yielded a reduced output and contributed to the lacklustre results.

Inflation caused producer prices to rise more than expected which raised concerns that inflation will not fall as quickly as predicted this year. If household incomes are not given the necessary breathing space then Britain’s expected recovery could be stemmed; these robust prices pose a serious threat to economic growth in the UK.

Producer Price Index for Input increased by 2.1% in February compared to only 0.1% in January, predictions had suggested a rise of 1.0%. Input PPI posted a larger gain of 7.3% in the year on year figure, as opposed to an estimated 6.8%. Output PPI increased by 0.6% in January compared to December, and the figure was 4.1% higher than January 2011’s number.

The Pound fell to daily lows of 1.190 against the Euro Exchange Rate this morning upon the release of these dovish ecostats. But markets have shown renewed faith in Sterling since the US Nonfarm Payrolls came in at a better than anticipated 227,000.