UK industrial output growth quickens in April, recovery broadens out

Reuters
Employees work on the production line for the Rolls Royce Ghost at the Rolls Royce Motor Cars factory at Goodwood
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Employees work on the production line for the Rolls Royce Ghost at the Rolls Royce Motor Cars factory at Goodwood near Chichester in southern England April 24, 2013. REUTERS/Luke MacGregor

By Ana Nicolaci da Costa and David Milliken

LONDON (Reuters) - British industry enjoyed its strongest annual growth in over three years in April, in a further sign that the country's rapid economic expansion is becoming less reliant on consumer demand.

Industrial output grew 3.0 percent, beating forecasts to record its biggest annual rise since January 2011, and in the three months to April it achieved its fastest pace of growth since June 2010, official data showed on Tuesday.

Britain's economy as a whole kept up last year's strong momentum in the first part of this year, and following the industrial output data, academic researchers estimated that gross domestic product had finally exceeded its pre-crisis peak.

The recovery is showing signs of broadening out from its earlier reliance on consumer demand and housing-related sectors.

That will be reassuring for policymakers who worry about the sustainability of a recovery led by consumers enjoying record low interest rates and a sharp rebound in house prices.

"The official and survey data ... help to dispel the notion that the recovery is based purely on consumer credit and the housing market, but is instead being fuelled to a large extent by booming factories and industry," said Chris Williamson, chief economist at Markit.

"This so-called 'rebalancing' means the recovery is looking increasingly sustainable."

Both industrial output and its main manufacturing component grew by 0.4 percent in April - in line with forecasts - and manufacturing output was 4.4 percent higher than a year earlier, the fastest expansion since February 2011.

The Office for National Statistics said industrial output would have shown even greater annual growth had it not been for an unusually warm April.

The weather contributed to an 11.5 percent decline in electricity and gas output in April, which knocked around 1 percentage point off the annual industrial output growth rate.

"Unless output stagnates or falls back over the remaining months of the second quarter, the sector should make its biggest contribution to quarterly GDP growth in four years in Q2," said Samuel Tombs, UK economist at Capital Economics.

PEAKING LATE

Economic output finally exceeded its pre-recession peak in May, the National Institute of Economic and Social Research said on Tuesday, reaching a milestone long passed by the United States and Germany.

But industrial output has more catching up to do to get to pre-financial crisis levels, as it is still more than 11 percent below its peak - in part due to long-term decline in Britain's North Sea oil and gas fields.

The Bank of England has said it wants to see stronger business investment and exports before it raises interest rates from their record-low 0.5 percent, something most economists think is just under a year away.

Last week's Markit survey of factory purchasing managers suggested that economic rebalancing was underway, with growth continuing to be robust in May.

And on Monday the EEF manufacturers' trade body revised up its growth forecast for the sector this year to 3.6 percent, from 2.7 percent expected three months ago.

However, manufacturing has further to go to catch up on the deep slump after the 2008 financial crisis. Factory output is still 7.0 percent below its peak, while services sector output is already well above its pre-crisis peak.

Recovery however has not yet translated into higher price pressures, allowing the Bank of England last week to once again keep interest rates on hold.

(Additional Reporting by Andy Bruce; Editing by Catherine Evans)

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