Feb. 9 (Bloomberg) -- U.K. manufacturing output fell for a second month in December, the first back-to-back decline since October 2002, as European demand for British goods remains weak. Factory production, a fifth of Britain's economy, dropped 0.1 percent, following a revised 0.6 percent decline in November, the National Statistics office in London said. From a year ago manufacturing grew 0.5 percent compared with a revised 0.6 percent gain in November. Demand for British products ranging from machinery to clothing has slumped as consumers in Europe's biggest economies held back on spending while unemployment climbed. German retail sales plunged in the final two months of last year and French consumer spending barely gained in December.
``There's no domestically self-sustained element to the pickup in the euro zone,'' said Richard Batley, an economist at HBOS Plc, before the report. ``The U.K. manufacturing sector will never be firing on all cylinders whilst Europe lacks that domestic demand growth.'' December's decline was led by a slump of 1.5 percent in the production of electrical and optical equipment, and a 1.1 percent cutback in output by chemical companies. Manufacturers have been shedding staff to try to boost profit as sales suffer. FKI Plc, which makes conveyor belts for airports, plans to shed 1,500 jobs, more than 10 percent of its workforce. Alvis Plc, Britain's largest maker of military tanks, also said last week it's cutting staff numbers.
Shrinking Workforce
The manufacturing workforce, comprising almost three and a half million people, shrank by more than 3 percent in the past year, according to the latest government figures. A rise in the value of the U.K. currency may further depress manufacturing. The pound has risen nearly 5 percent against a trade-weighted basket of other currencies in the past six months. A stronger pound makes British exports relatively more expensive. Industrial production, which also includes utilities and mining, fell 0.1 percent in December after a revised 0.9 percent decline the month before. From a year ago, industrial output slipped 0.8 percent, compared with a 0.4 percent drop in November.
The Bank of England last week raised interest rates for the second time in four months on concern faster economic growth will fuel inflation. Bank policy makers including Governor Mervyn King have said rates will rise ``gradually.'' Producer prices rose 0.2 percent in January, the same pace as in December, and climbed 1.6 percent from a year ago, the statistics office said. The core measure which excludes food, drink, petroleum and tobacco prices increased a seasonally adjusted 0.1 percent, and rose at an annual rate of 1.4 percent. Input prices, which include raw materials and imported products, fell 1 percent in January and were unchanged in the year, adjusted for seasonal variations.
The strengthening of the pound against the dollar held back the price of raw materials, the statistics office said.//www.bloomberg.com