Manufacturers in recession despite a strong surge

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Manufacturing output fell 0.8% in the final three months of 2011, its second quarterly decline in a row, with pharmaceuticals, electronics and metal manufacturing the worst hit, the Office for National Statistics said.

But there was some cheer in the figures as manufacturers enjoyed a much stronger-than-expected finish to the year with surprise 1% growth during December.

Overall production growth, including mining and utilities, managed 0.5% expansion over the month, but shrank 1.4% over the quarter, the biggest fall since the beginning of 2009. December's surge was too weak to alter the picture of overall growth during the fourth quarter, which showed the UK economy shrinking 0.2%.

But Lee Hopley, chief economist at the EEF manufacturers' body, said: "The fourth quarter wasn't a complete write-off with the strong rebound in manufacturing output hopefully providing a solid platform for continued recovery."

The smallest overall trade deficit for nearly eight years in December, just £1.1 billion, also provided a positive backdrop for the Bank of England's latest policy meeting, at which rate-setters were expected to launch a fresh round of quantitative easing.

The European Central Bank was also tipped to cut rates to a euro-era low of 0.75% as the single currency bloc goes into recession.

The trade figures showed the UK's goods trade gap narrowing to £7.1 billion in December, compared with £8.9 billion in November, driven by record oil exports. Excluding volatile oil and erratic items, exports fell 0.4%, far less than the 3.6% decline in imports.

IHS Global Insight's Howard Archer warned: "The main reason behind December's narrowing in the trade deficit was a marked fall in imports which points to weak domestic demand."