|Dire British factory data points way to third recession
British industrial production fell sharply in January, official figures show, raising fears that the country will suffer its third recession in not much more than four years.
The Office for National Statistics said industrial production dropped a monthly rate of 1.2 percent from December, in contrast to expectations for a 0.2 percent rise. Industrial output includes manufacturing, as well as sectors such as construction and oil and gas production, and accounts for around 20 percent of the British economy, which is Europe's third-largest, AP reports.
The pound fell sharply on the news as traders think it's more likely now that the Bank of England will back another monetary stimulus in the months ahead. At one point, the pound fell to US$1.4830, its lowest level since June 2010, from US$1.4905 just before the figures were released. It has since settled around the US$1.4860 mark.
The industrial figures are the latest in a series of downbeat indicators suggesting that Britain's gross domestic product, may shrink again in the first quarter of 2013. If it does so, Britain would be in its third recession, defined as two consecutive quarters of economic contraction, since the end of 2008.
“Overall, a dire set of UK data,'' said Ross Walker, an economist at the Royal Bank of Scotland. “The slump in industrial production in January leaves a decline in Q1 GDP looking more likely than not.''
That's the gloomy backdrop to next week's annual budget.
However, given the country's continuing high borrowing levels and the government's primary debt reduction policy stance, Treasury chief George Osborne is thought to have little room to raise spending or cut taxes.
“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 [Osborne] to accept that more needs to be done to boost growth in next week's budget,'' said Chris Williamson, chief economist at Markit.