UK Economy: Triple-Dip Fears Reignited

By Ed Conway, Economics Editor

The pound has fallen by more than half a cent against the dollar as a sharp fall in manufacturing output raised the likelihood that the UK could slip back into recession.

Sterling dropped from just under $1.492 to $1.484 in intraday trading after the Office for National Statistics reported a 1.5% fall in manufacturing output in January.

The figures, which analysts had expected to be flat, feed directly into the first estimate of UK gross domestic product, which will determine whether Britain is back in recession.

They add to growing fears that the UK economy has slumped decisively over the past six months, and will raise the prospect that the Bank of England acts to pump more stimulus into the economy at its next Monetary Policy Committee meeting.

The Bank Governor, Sir Mervyn King, voted for more quantitative easing at last month's meeting.

Overall industrial production, which also includes mining and quarrying, dropped 1.2% in January – far worse than the 0.1% increase economists had expected.

Some analysts said that the figures had been affected by poor weather in the month, but even bearing that in mind, they were worse than anticipated.

James Knightley of ING said: "It looks as though this sector is going to be a major drag on growth in the first quarter of 2013.

"We have already had poor construction numbers for the start of the quarter so the prospect of yet another return to technical recession is very real.

"This will intensify the pressure on the BoE to do more to help support the economy given government officials suggests they have no intention of letting up on austerity.

"As a result more QE remains probable with sterling very much biased to the downside."

The pound has fallen by around 10% against the dollar since the start of the year, and some economists expect it to fall further in the coming months. It has rarely dropped beneath $1.50 in the long run.

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