Pick-up in UK industry signals fragile recovery

By Olesya Dmitracova and David Milliken

LONDON (Reuters) - British industry bounced back surprisingly strongly in February, pointing to a nascent economic recovery that may nonetheless need more help from the central bank to gather pace.

A 1 percent rise in industrial output from January lifted production in February slightly above its average level in the last three months of 2012, when the economy shrank.

The data, released on Tuesday by the Office for National Statistics, fed into a monthly estimate of gross domestic product by the National Institute of Economic and Social Research, which found 0.1 percent growth in the first quarter.

The releases allay fears of two consecutive quarters of economic contraction, which would tip Britain into its third recession in less than five years.

But "glimmers of hope" do not remove the need for more quantitative easing through bond purchases by the central bank, according to Paul Fisher, a Bank of England policymaker.

Fisher said the bank's Funding for Lending Scheme was improving conditions for borrowers, but the economy still needed other help until that scheme got up to full steam.

"We need some sort of background level of QE to see us through this period, particularly while FLS has its full impact for the remainder of this year," he told a newspaper.

Fisher and two other policymakers voted for 25 billion pounds of extra gilt purchases in February and March, on top of the 375 billion pounds bought so far to pump money into the economy.

The pound rose to within sight of a 1-1/2 month high against the dollar after the industrial output data spurred some cautious optimism that Britain might avoid renewed recession.

APOCALYPSE AVERTED?

February's strengthening in industry, which late last year was the main drag on the economy, was led by a 0.8 percent rise in manufacturing output, as well as by higher demand for energy during the unusually cold month.

"If the level of (industrial) production remains the same in March, then over the first quarter as a whole industrial production will have risen by 0.1 percent," said David Tinsley, economist at BNP Paribas.

"These apocalyptic stories of a negative (first-quarter GDP) print and a triple dip (into recession) are still certainly not guaranteed," he added.

Industrial output was boosted by the biggest rise in the production of electricity and gas since October, due to an average temperature during February 0.9 degrees Celsius below its long-term norm.

It is also likely that continued cold weather supported industrial activity in March, economists said.

The first official estimate of how Britain's economy fared in the first quarter will be released on April 25.

Until then, the prospect of return to recession hangs in the balance. While a survey of purchasing managers showed manufacturing activity shrinking in March, alongside a risk of weak construction output during the first quarter, there are some signs of a recovery.

A survey out on Tuesday showed that the FLS is helping Britain's housing market, with sales at their highest level in three years and prices broadly stable in March.

Resilience in the retail sector adds to optimism, as sales kept growing last month despite the cold weather.

However, ONS data also released on Tuesday showed Britain's goods trade deficit grew much more than expected in February to reach its biggest since August at 9.4 billion pounds, mainly due to sluggish exports to other European Union countries.

(Additional reporting by Kate Holton and Peter Griffiths; Editing by Catherine Evans)

Source: http://news.yahoo.com/factory-rebound-energy-boost-february-industrial-output-083523223--business.html

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