Slump in industrial output brings recession step closer

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Manufacturing output slumped last month, catching most economists on the hop because they had expected little change between April and May. Instead, a sharp fall in the production of machinery and what officials called "weather-related" declines in energy production made for glum reading.

Manufacturing output fell 0.5% in the month while the wider measure of industrial production, which includes energy and water output, slumped 0.8%.

"The industrial section of the economy is already in recession," said Paul Dales, UK economist at Capital Economics-"This means that all parts of the economy appear to be heading down at the same time, bringing the UK economy even closer to recession."

Howard Archer, chief economist at Global Insight, said: "The bad news on the UK economy is coming thick and fast at the moment and the downturn appears to be depending appreciably. An interest rate cut this Thursday remains a remote possibility, given the Bank of England's concern over current elevated inflation levels and risks. Indeed, if the Bank does act in the near term, it is most likely to raise rates."

The Bank's monetary policy committee-starts its two-day interest rate setting meeting on Wednesday facing what commentators call one of its hardestever decisions as inflation rises well beyond its 2% target but the economy shows ever-worsening signs of decline.

Analysts pointed out that last week's surveys from purchasing managers in manufacturing, services and construction all strongly indicated there is worse to come.

Capital's Dales said: "With the surveys already pointing to a further weakening in manufacturing activity, the industrial sector is likely to continue to add to, rather than offset, the weakness in other areas of the economy."