The drop overturned a 0.9% rise in December for manufacturing output which appeared to scare the market into dropping the pound against both the euro and the dollar.
The pound fell to $1.4867 after the news was released and marks the lowest rate for the currency for 2.5 years against the dollar and 1.5 agaisnt the euro
Mike Rigby, head of manufacturing at Barclays said,
“After a positive end to last year, January’s figures show that the outlook remains difficult with uncertainty set for the medium-term,”
“Manufacturing has long been seen as a precursor for the UK economy, and therefore it’s no surprise that current activity mirrors the challenging economic environment.
“The sector is keen to see if there will be any additional support in the Budget next week.”
Manufacturing includes a number of industries and the figures break down as such;
- Energy Production and Mining -1.2%
- Mining and Quarrying sector saw a drop of 2.4%
Manufacturing output is now 3.0% lower than it was in January 2012 with a number of separate factors causing the drop including the following,
- Pharmaceutical products & pharmaceutical preparations dropped 13.2%
- Manufacture of rubber & plastics products & other non-metallic mineral products were down 10.3%,
- Manufacture of machinery & equipment dropped 5.6%
There were some increases for manufacturing such as,
- Transport equipment increased 4.4%
- Computer, electronic & optical products rose 4.3%
The UK will go in to a triple dip recession if it reports a second negative quarterly growth and a drop in output along with the pound falling could do that.
Alan Clarke, economist at Scotiabank, said he believes it’s almost certain the UK will go into a triple dip recession,
“This [manufacturing data] is the penultimate nail in the coffin in terms of triple-dip – it’s pretty much game over now.
“Unless we have a stellar performance from the services sector, we’re almost certainly in a triple dip.”
There was some hope that the housing market and rising employment could hold off the third recession since the financial collapse but that seems unlikely now.