UK, German output goes into reverse

LONDON, England (CNN) -- The UK's manufacturing sector, one of the main engines driving the economy, took an unexpected turn for the worse in March as the global slowdown cut into production.

And Germany's industrial output fell surprisingly by 0.8 percent in March.

The UK manufacturing decline -- the largest in more than a decade -- follows recent signs of growth in the manufacturing sector and suggests the country's economic recovery may have slowed.

It also means the Bank of England will likely hold off raising interest rates at its monthly meeting on Thursday to avoid slowing economic growth any further.

The BoE's key lending rate now stands at 4 percent, the lowest level in 38 years. The central bank cut the rate seven times last year to encourage consumers and businesses to spend more money to help pull the economy out of its slump.

The Office of National Statistics on Wednesday said manufacturing output fell 0.8 percent in March after growing at a revised rate of 0.2 percent in February, Economists had been expecting a monthly rise of 0.3 percent in March.

On a year-to-year basis, manufacturing output fell 6.8 percent in March, its biggest decline since August 1991.

"These data indicate just how fragile the recovery is. Manufacturing is still facing considerable head winds, not least from the strength of sterling and the lack of competitiveness,'' Richard Iley, an economist at ABN Amro, told Reuters.

"This very much rules out any surprise move by the BoE on interest rates this week,'' he added.

The ONS said the biggest declines were in the chemicals and man-made fibres industry, which fell 2.9 percent in March, and the transport equipment sectors, which shrank by 1.9 percent.

The two sectors accounted for 70 percent of the monthly decline in manufacturing production, the ONS said. Manufacturing makes up about 80 percent of the UK's industrial output.

Meanwhile in Germany, Europe's biggest economy, industrial output also fell unexpectedly in March.

The Finance Ministry said on Wednesday that overall industrial production fell 0.8 percent from February, while manufacturing output slipped 0.3 percent in March from the previous month.

The figures added to the country's increasingly gloomy economic outlook.

On Tuesday, the Federal Labour Office said there were 6,000 more people out of work in April, bringing the seasonally adjusted total to 3.974 million. The jobless number had been expected to rise by an average of 600 workers.

At the start of the week, Germany's biggest union launched a series of strikes in different parts of the country. The IG Metall union, which has 2.7 million members, is targetting key industries -- such as carmakers -- to back demands for wage hikes of 6.5 percent.

Economist believe the labour action and high pay demands will hurt Germany's fragile economic recovery.