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Manufacturing takes a dip but future for recovery still bright

A DIP in official manufacturing output has cast doubt over the pace of the British economic recovery.

The sector fell 1.3 per cent in May when compared to the previous month, according to data published yesterday by the Office for National Statistics (ONS).

That was the biggest month-on-month fall since January last year and ended a run of growth stretching back six months.

The ONS said the main contributors to the decrease in manufacturing were basic metals & metal products; basic pharmaceutical products & pharmaceutical preparations; and computer, electronic and optical products.

Economists had expected a rise of 0.4 per cent with some suggesting the May result may just be a blip.

Others however highlighted the recent strength of the pound against the dollar making exports more expensive and pointed out the eurozone remains in a fragile state.

The Bank of England is due to announce its latest decision on rates tomorrow, with some experts expecting the first increase from the current record low of 0.5 per cent before the end of this year.

Many business groups have warned against raising rates too soon amid fears it will jeopardise the recovery.

Howard Archer, chief UK economist at IHS Global Insight, said the manufacturing data was "disappointing and surprising" but believes prospects for manufacturers still look bright.

The ONS said total production, which also includes results from mining, quarrying, waste management and energy and water supply, was down by 0.7 per cent.

The production industries make up more than 15 per cent of GDP.

Compared to May 2013 production output was up by 2.3 per cent.

However for the three months to May 2014 production was 11.3 per cent below its pre-downturn peak and manufacturing 7.2 per cent behind.

Chris Williamson, from Markit, said: "Britain's factories saw a surprise drop in output in May, which will add to arguments that the recovery remains too fragile for policymakers to be considering any tightening of policy.

"However, the weakness sits in stark contrast to buoyant business surveys, which show the sector to be in rude health."

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