UK Dec industrial output fall points to weaker Q4 GDP

British industrial production fell more sharply than expected in December and at its fastest quarterly rate since 1974, suggesting the economy shrank even more sharply at the end of last year than first thought.

The Office for National Statistics said on Friday that industrial production, which makes up 18 percent of gross domestic product, shrank by 1.7 percent in December, taking the annual rate down to -9.4 percent — the weakest since January 1981.

On the quarter, output was down 4.5 percent, the sharpest contraction since Q1 1974, when energy shortages resulting from coal miners' strikes in Britain forced the government to impose a three-day working week.

The ONS said that all things being equal, December's figures would take 0.1 percentage points off Q4 GDP. The preliminary estimate for GDP for the last three months of 2008 showed a contraction of 1.5 percent, which was the biggest drop since 1980.

Manufacturing output fell 2.2 percent on the month, taking the annual rate down to -10.2 percent, the weakest since March 1981. The quarterly rate of -5.1 percent was the weakest since Q1 1974.

"The end of the year was a dire period for the manufacturing sector," said Brian Hilliard, economist at Societe Generale. "The best we can hope for is a stabilisation in the year-on-year rate at a deeply negative number."

The pound fell against the dollar and euro as investors bet the Bank of England would have to cut interest rates further from the current record low of 1 percent and may even have to take unconventional action to support the economy.

Separate figures from the ONS showed producer prices were stronger than expected in January, although the annual rates of inflation are continuing to ease.

Annual output price inflation eased to 3.5 percent from 4.6 percent in December, the weakest since Sept. 2007.

Input price inflation eased to 2.3 percent on the year from 3.5 percent in December, the weakest since August 2007.