UK factory output shrinks, dampens recovery hopes

British manufacturing output unexpectedly shrank in May, official data showed on Tuesday, making it less likely the economy returned to growth in the second quarter.

Manufacturing output fell 0.5 percent on the month in May, versus expectations of a 0.2 percent rise. April's figures were revised down to show no change instead of the 0.2 percent rise initially reported.

On the year, factory output fell 12.7 percent.

The wider industrial production measure, which accounts for 17.2 percent of the economy, also fell by 0.6 percent against forecasts of a 0.2 percent rise.

Sterling fell a fifth of a U.S. cent as the worse-than-expected data boosted expectations the Bank of England will expand its 125 billion pound quantitative easing scheme later this week as it tries to pull Britain out of recession.

Some economists have been forecasting a turnaround in manufacturing and the wider economy following better survey data but these figures are likely to heighten concern the economy is still some way from a durable recovery.

"Maybe we were getting a bit optimistic," said Brian Hilliard, economist at Societe Generale.

The Office for National Statistics said the monthly fall in manufacturing was driven by a 2 percent decline in the paper, printing and publishing industries — sound recordings were particularly hit — and a 1.7 percent fall in the machinery and equipment industries.