UK industrial production falls at fastest rate in four decades

• February was 12th month of manufacturing decline
• Longest slump for manufacturing since recession of 1980

• Julia Kollewe
• guardian.co.uk, Tuesday 7 April 2009 12.16 BST
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Industrial production in Britain is falling at its sharpest annual rate since 1968, with carmakers particularly hard hit. Official figures out showed that nearly all sectors of industry are suffering after a collapse in world trade.

Industrial output – manufacturing, utilities and mining – dropped by 12.5% in February from a year ago, its biggest annual fall since records began four decades ago, according to the Office for National Statistics. Output was down 1% when compared with the previous month, a smaller fall than City economists expected.

Manufacturing fell for 12th month. Photograph: Gary Gladstone/Corbis

Manufacturing production alone fell by 0.9% in February from the month before, also less than expected. But the fall marked the 12th month of decline – the longest slump since the recession of 1980. And the annual rate of decline worsened to 13.8%, the sharpest contraction since January 1981.

Howard Archer, at IHS Global Insight, said the declines fuelled fears that the economy shrank in the first three months of the year at a rate close to the 1.6% drop suffered in the fourth quarter of last year. And interest rates were likely to stay at 0.5% for some time.

The news came as fresh Eurostat data showed the recession in the eurozone was deeper than previously thought – the decline in fourth-quarter GDP was revised to 1.6% on the previous quarter.

Mark Miller, an economist at HBOS, said: "World demand is the real key and until that starts to show some signs of light it is premature to think that the manufacturing sector in the UK will turn around quickly."

Statistics for the three months to February revealed an even worse picture, with manufacturing down 6.5% from the previous quarter. Car production plummeted by 45% from a year ago and car parts were down 34%.

Overall, transport equipment was down 13.1%; metals production fell 11.2%; machinery retreated 11.7%, and electrical and optical equipment declined 4.8%. The coke, petrol and nuclear-fuels industries were the only sector to record an increase over the three-month period.

Miller said: "The business surveys suggest that the overall mood is extremely downbeat. At some point sterling's decline will provide some support to the sector, but a lot depends on our main export markets.

"Clearly the eurozone still has its own recession problems. It is going to be a while before the manufacturing sector sees a little bit of light."

The FTSE 100 index went sharply into reverse after the figures were released, falling more than 80 points to 3912.54 – a drop of 2% – having been up about 10 points before the data. Markets across Europe also turned negative, and the pound slipped against the dollar on fresh fears over the economy.

The figures come a day after the Society of Motor Manufacturers and Traders reported a 30.5% fall in car sales in March from a year ago, prompting fresh calls for the government to pay motorists to trade in their old cars for new ones.