UK industry limps into second quarter, Royal Wedding holiday weighs

British factory output fell at its sharpest monthly pace in around two years in April, hit by an extra holiday for the Royal Wedding and supply chain disruption from Japan's earthquake, and suggesting the economy made a lacklustre start to the second quarter.
The weak output data, together with news of a sharp slowdown in factories' input costs in May and a survey showing public inflation expectations fell for the first time in more than two years, reinforced the view that interest rates will stay on hold for several months to come.
The Office for National Statistics said industrial output fell 1.7 percent in April, confounding the median forecast for a rise of 0.1 percent, and the biggest fall since August 2009. The narrower measure of manufacturing output - which does not include utilities or oil and gas extraction - dropped 1.5 percent in April, the steepest fall since January 2009.
Economists have cautioned that the unusual combination of an extra holiday, late Easter and record warm weather April would make it difficult to forecast data and to assess the state of the economy throughout the second quarter. This uncertainty was reflected in the broad range of forecasts for the April industrial output figures, which ranged from a rise of 0.7 percent to a drop of 5 percent on the month.
Many investors had been positioning for a weak reading and gilt futures trimmed some of their early gains. Sterling initially fell to a session low against the dollar and the euro after the data, but quickly recouped most of those losses. Manufacturing has been a driving force of Britain's economic recovery, benefiting from a past fall in the pound and robust demand from other countries. But recent surveys have indicated the sector may be running out of steam.
Nonetheless, British Prime Minister David Cameron insisted on Friday that the government was following the right course of action to rebalance the economy. "You are moving from one sort of economic model to a new sort of economic model, but I believe we are seeing that rebalancing, we are making progress, but it is going to be choppy and there will be good months and bad months," he said in a interview on the ITV television channel.
Separate data from the ONS showed factory gate inflation eased in May, as manufacturers' input costs fell at their fastest monthly pace in two years. Producer output price inflation eased to 5.3 percent in May from an upwardly revised 5.5 percent in April.
Other figures on Friday also suggested the economy made a weak start to the second quarter after growing by just 0.5 percent in the first three months of this year. Construction output, which was one of the biggest drags on growth in the first three months of this year, fell by 13.8 percent on the month in April, according to unadjusted data published by the ONS.
The ONS did not quantify the impact of the extra holiday or the other one-off effects in April. But it said car manufacturers had been hit by supply chain disruptions caused by Japan's earthquake and Tsunami in March. Record warm weather in April caused a sharp monthly drop in utilities output.