Pound slips and double dip fears grow with fall in UK's manufacturing

Official figures showed output from British factories fell 0.9% in January in a stark warning that manufacturers are struggling to shake off the slump.

The decline — the first for five months — reversed December's 0.9% gain and surprised the City which was expecting another modest rise.

It stoked fears that the economy could shrink again in the first quarter of the year having edged out of recession at the end of 2009 with growth of 0.3%.

David Tinsley, an economist at National Australia Bank, said: "It's possible UK gross domestic product will be weak or a bit negative in the first quarter."

Sterling slid again on the news, down 1.05 cents against the dollar to $1.4892 and 0.58 cents against the euro to 1.0968.

Analysts said snow and ice hindered production during January but were only partly to blame.

"It is impossible to blame everything on the weather," said Philip Shaw, an economist at Investec. "The figures are very disappointing."

Overseas demand for British goods has failed to pick up despite the weakness of the pound. Dismal figures yesterday showed exports collapsed in January.

The latest blow to the Britain's economic prospects came as Gordon Brown warned that the recovery "is still in its early stages and remains very fragile".

The Prime Minister said: "It's pretty obvious what's happening. The European economy which is our major source of growth is not growing fast enough."

The fall in factory output was felt mostly by manufacturers of electrical goods, chemicals and man-made fibres. It meant overall industrial production, which includes mining and utilities, fell by 0.4% in January.