LONDON (MktNews) - UK manufacturing output is expected to fall in March, as the US-led global slowdown bites more deeply, with some analysts saying Wednesday they fear a recession in the sector by the second quarter.
The median forecast of a survey conducted by Market News International sees March manufacturing production fall by 0.2% on the previous month and rise by 0.7% on a year earlier. Analysts' forecasts range from a monthly fall of 0.5% to an increase of 0.1%.
"The US slowdown is taking hold on the industrial sector -- we've seen the first signs of that. Industrial surveys now point to a much sharper contraction," said John Butler economist at HSBC. He expects manufacturing output to contract in March by 0.4% on the month.
Butler also remains gloomy on the medium-term prospects for the manufacturing sector. "Its not going to be a one-off, there's only one way, and that's down. We think there will be a manufacturing recession by the second quarter," he said.
Manufacturing output rose just 0.1% on the month in February, following a large 0.8% decline in January. Analysts had expected to see a larger rise in February, but an expected bounceback in the optical networking and mobile telephones industry failed to materialise.
For March, analysts are expecting to see a decline as private-sector surveys point to a sharper fall in output.
The April CBI survey showed the business optimism balance sliding to -29% from -3% in January, the lowest since January 1999. Also output expectations turned negative for the first time since June 2000 and orders continued to worsen.
The April CIPs manufacturing survey revealed that the overall activity index fell to 47.8 from 49.8 in March, the lowest for more than two years. A figure below 50 indicates a contraction.
David Page, economist at Investec, broadly agrees with Butler. "Manufacturers appear to be bearing the brunt of the fall in global demand growth and it would appear that there is little short-term respite for the sector," he said.
"We believe that the fall in the PMI into contractionary territory heralds a further decline in output and look to a -0.3% change on the month (in March)," Page said.
The wider measure of industrial production is expected to remain unchanged on the month in March to stand 0.3% above levels a year ago.
Most analysts believe that both utility output and oil and gas production rose in March.
Page expects to see a 0.1% monthly increase. "This will be led by a rise in production of North Sea oil, which has languished over the past few quarters. We also expect colder weather in March to have boosted utility production," he said.
The index of production data will be released on Thursday, May 10, at 08:30 GMT.
The Bank of England Monetary Policy Committee began its two-day meeting Wednesday and will announce its interest rate decision at 11:00 GMT on Thursday.
In a recent survey conducted by Market News, eighteen out of nineteen analysts said they expect the MPC to cut rates by 25 basis points to 5.25%.