UK manufacturing suffers shock contraction

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Media captionLee Hopley: "It's not taking an awful lot at the moment to turn growth into a negative number"

Activity in the UK's manufacturing sector unexpectedly shrank in February, according to a closely watched survey.

The Markit/CIPS purchasing managers' index (PMI) for manufacturing fell to 47.9 last month, from a downwardly revised 50.5 in January.

It was the first reading below 50 - which indicates contraction - since November.

The figures could mean that the sector will act as a drag on the economy in the first quarter.

"The return to contraction of the manufacturing sector is a big surprise and represents a major setback to hopes that the UK economy can return to growth in the first quarter and may avoid a triple-dip recession," said Chris Williamson, chief economist at Markit.

Sterling fell sharply against the dollar after the figures were published, dropping 1.6 cents to $1.5001. The pound also fell against the euro, though later pared some of those losses to trade at 1.1561 euros.

March pick-up?

Both output and new orders fell in February, Markit said, while purchasing activity was also cut markedly as manufacturers continued to show a preference for holding less stock.

Staffing levels in the sector dropped at their quickest pace in more than three years.

But Mr Williamson added that there were good reasons to believe that manufacturing might pick up again in March.

February's figures suffered a knock-on effect from the bad weather at the end of January, and were also hit by a stronger-than-usual effect on global trade flows from the Chinese New Year holidays. The weaker pound may also help British exporters in the coming months, he said.

The manufacturing sector accounts for 10.5% of the UK economic output, according to the Office for National Statistics (ONS).

Lee Hopley, chief economist at EEF, the manufacturers' organisation, said the latest PMI data underlined the challenges the industry was facing, with soft domestic markets compounded by flagging demand from abroad.

"One-off factors such as the weather appear to have played some part again in suppressing activity and orders, but there is no denying that underlying momentum in the sector remains weak," she said.

"This month's Budget is an important opportunity for the government to build on its Autumn Statement announcements by continuing to focus on what matters most for growth and investment."

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