Manufacturing drop adds to UK economy worries

British manufacturing output fell in March at its sharpest rate in six months as a drop in car production led a broad-based retreat after a strong start to the year.

The surprise decline suggests Britain's economy may be set for a broad-based slowdown, with manufacturing unable to compensate for a rapidly weakening consumer sector.

"It is another soft economic reading for March and suggests the slowing in the economy is gaining traction," said George Buckley, chief UK economist at Deutsche Bank.

The Office for National Statistics said manufacturing output fell 0.5 per cent in March.

This was the weakest since last September and compared with analysts' forecasts of an unchanged reading.

The wider measure of industrial production also fell by 0.5 per cent, its sharpest monthly fall in more than a year.

Other things being equal, the figures would shave 0.02 percentage points off the preliminary estimate of gross domestic product growth in the first quarter.

The drop in manufacturing output in March followed several months of surprisingly strong figures and it is too early to say that the trend has turned.

Britain's service sector grew last month at its weakest rate in five years while house prices, according to the country's biggest mortgage lender, fell at their fastest annual rate in 15 years.

Second-tier data released earlier on Wednesday provided little cheer.

A survey by the Nationwide building society showed British consumer morale had fallen to its lowest level since records began four years ago while a report by REC/KPMG showed permanent job placements fell last month for the second time in three months.

"Three releases this morning join the chorus of data in recent weeks that have been uniformly weaker than expected," said Allan Monks at JPMorgan.

"Given that the market has not moved to price in a cut at tomorrow's MPC meeting, our call that they go looks finely balanced but this morning's sharp drop in industrial production, consumer confidence and labour market activity strengthen the case for a policy easing."