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UK factory output grows at fastest quarterly pace

London, May 10, 2014

British factory output grew at its fastest pace in nearly four years during the first quarter of 2014 and the trade deficit narrowed, official data showed yesterday, adding to signs that the economy is rebalancing.

The Office for National Statistics (ONS) said manufacturing output grew by 1.4 per cent in the first three months of the year, up from 0.6 per cent in the last three months of 2013.

This was the best calendar quarter since the second quarter of 2010, as the sector recovers from a steep slump after the financial crisis, and the strongest growth for any three-month period since October 2010.

Britain's trade deficit in goods with the rest of the world also narrowed more than expected, sinking to £8.478 billion ($14.37bn), its lowest since December.

"UK trade and manufacturing numbers offer more support to those looking for earlier Bank of England interest rate hikes and stronger sterling," said James Knightley, economist at ING.

"All in all, these reports are consistent with the UK economy gaining momentum," he added.

Meanwhile, NIESR, one of Britain's leading economics research think tanks, revised up its expectation of economic growth for 2014 to 2.9 per cent from 2.5 per cent.

There was little immediate move in sterling or British government bond prices, as monthly changes in factory and industrial output growth were only a shade better than forecast.

Industrial output dropped 0.1 per cent in March after a 0.8 per cent rise in February, while factory output grew by 0.5 per cent, building on February's 1 per cent rise.

Markets currently expect the Bank of England to raise interest rates from their record low 0.5 per cent in the first three months of next year.

Britain's central bank has said it wants to see spare capacity mostly used up before it raises interest rates, and to see the recovery led less by household demand and more by stronger exports and business investment.

Despite the recent pick up, manufacturing has lagged behind other sectors since the financial crisis, and is still 7.6 per cent below its level in the first quarter of 2008, when overall economic output peaked.

The growth in factory output in the first quarter of 2014 was faster than the 1.3 per cent pencilled into an initial estimate of gross domestic product (GDP) released last month, but a steep fall in electricity and gas supply dragged down the broader industrial output measure.

Industrial output overall expanded by 0.7 per cent in the first three months of 2014, up from 0.5 per cent in the last three months of 2013, but slower than the 0.8 per cent estimate in last month's GDP data.

Britain's economy overall expanded by 0.8 per cent in the first quarter of GDP, and the ONS said that this estimate was not materially affected by yesterday's new data on industrial output and construction output.

Construction grew by 0.6 per cent in the first quarter of 2014, twice as fast as assumed in the GDP estimate, and in March it was 6.4 per cent higher on a year earlier - its strongest annual rise in six months and one driven by private housing.

But like manufacturing, construction is recovering from a low base and output is still more than 12 per cent below its pre-crisis peak. By contrast, overall GDP is forecast to return to pre-crisis levels in the current quarter.

House prices have risen by around 10 per cent over the past year and are close to their peak before the financial crisis.-Reuters




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