UK Stagflation Pervasive: Industrial Production Plummets By Most Since August 2009

Tyler Durden's picture

Stagflation: meet economic collapse. The UK basket case is getting very, very ugly, with today's obliteration of Industrial Production putting in doubt expectations of a BOE hike. From AP: "British industrial production fell 1.2 percent in February from
January, an official report said Wednesday, marking the largest monthly
fall since August 2009 and far worse than analyst expectations for an
increase of 0.2 percent.
The Office for National Statistics said a
7.8 percent drop in oil and gas extraction was the main reason for the
fall, while the manufacturing sector was flat." And the winner: "It may be that the industrial recovery is past its peak," said Samuel Tombs, U.K. economist at Capital Economics. Industrial production accounts for 17 percent of British GDP." That's the bad news; the good news is that with runaway inflation which is now surging at 5%+ the economy has got to be improving: after all where would all this demand be coming from if not from some massive latent recovery. Oh wait, what's that you say: endless liquidity? You don't say. Well, never mind then. In other news GBP crosses get obliterated as rate hike expectations are put on hold. In fact what you can put on the front burner is more money printing, both at the BOE and the Fed because central banks are so much more adept at "controlling" inflation than deflation.

Not even Goldman could spin this data. From Goldman Sachs:

BOTTOM LINE:  Headline industrial production was much weaker than expected in February (-1.2%mom versus Cons: +0.4%), driven by sharp falls in oil and gas extraction (-7.8%mom) and utilities output (-2.1%mom). This lowers our 'bean count' for the ONS's Q1 GDP data from +0.8-0.9%qoq to +0.6-0.7%qoq, but the uncertainty surrounding the preliminary Q1 GDP data remains substantial. Manufacturing output (which excludes utilities and energy supply) was unchanged on the month. This was also weaker than expected (Cons, GS: +0.6%mom), but the downside surprise was smaller than to overall IP.

1. Both headline IP and its manufacturing output component surprised on the downside. The larger surprise in the former was driven by a sharp decline in utilities output (-2.1%mom) and oil and gas extraction (-7.8%mom) - both of which are not part of manufacturing output. Taken together, the components of this morning's release push our Q1 GDP 'bean count' down from +0.8-0.9%qoq to +0.6-0.7%qoq (Table 1). Construction output for February is released on Friday and this will be the final input into the Q1 GDP data available before 27 April. We will further refine our estimate of the Prelim GDP in light of Friday's data but, even after this, the uncertainty around the Q1 print will remain substantial.

2. The GDP implications of the particularly weak non-manufacturing components of headline IP must be seen in the context of the lower weight the MPC places on them. In assessing the underlying path of output, policymakers tend to strip out both utilities output (because it is volatile and largely driven by the weather) and oil and gas extraction (again because it is volatile, but also because it is not very labour intensive, predominantly offshore and internationally-owned). According to the ONS, mining and quarrying experienced a seasonally unusual slowdown due to maintenance work, and utilities output contracted partly due to mild weather in February. That's not to say that zero sequential growth in manufacturing output through February is not disappointing (consumer durables output was the largest drag, registering -2.9%mom), but the downside surprise in this component is smaller than the disappointment in headline IP.

3. One would need manufacturing output growth of around ½%mom in March to surpass the Q4 growth rate of +1.1%qoq registered in Q1. As Chart 1 shows, the latest Manufacturing PMI readings remain consistent with very strong growth - around 10% annualised (more than 2%qoq non-annld).

4. A number of clients have asked us what reading of the ONS's Preliminary Q1 GDP we think would be sufficient for the MPC to hike in May? We don't think there is a precise answer to this question - much as the MPC has appeared to emphasize the importance of this release, other factors (the strength of survey data and pay deals, to name just two) are clearly influential also. That said, it seems likely that growth of +0.8%qoq would be sufficiently strong (as this is what they forecast in the February Inflation Report), while +0.5%qoq or below (implying zero growth over Q4 and Q1 together) is likely to be too weak. Our central forecast remains that the first hike will take place in May, but we will revisit this question in light of the Q1 GDP release on 27 April.

5. Also released today, the headline employment index in the Report on Jobs gave back some of its sharp February increase, falling three points from 62.7 to 59.7 in March. As a reliable leading indicator of private-sector jobs growth in the past, the Report on Jobs is consistent with private-sector employment growth of close to 2% Q1 (Chart 2). That would be more than enough to cover prospective public-sector jobs losses (0.3% of private-sector employment per year) and trend workforce growth (0.7%-0.8%).

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TaxSlave's picture

Pray to God they don't run out of paper and ink!

Quintus's picture

I should imagine that the paper and ink manufacturing sector contributed strongly to these IP results as the BoE places orders for mega quantities of new supplies in advance of the next round of QE.


Conrad Murray's picture
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Quintus's picture

Yeah, we know they don't actually print the money, but it makes for blacker humour.

TaxSlave's picture

Sorry.  Pray to God their databases run on 128 bit architecture.

Thanks for reminding us.

j0nx's picture

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Fixed it for you.

Josephine29's picture

Actually the Bank of England gave us a hint as to its real fears yesterday.Take a look at this.

I am grateful to Bloomberg who have leaked a memo from Governor King to staff and my only concern is that it is dated April 1st! However in it Governor King promises to restrict rises in canteen prices whilst maintaining the quality of the cusine. Can you do the same for the rest of us please Governor?


Yes those non-existent food price rises are affecting the Bank of England canteen and leading to staff complaints....

Diidier's picture

Krugman announced that.

Horatio Beanblower's picture


A man has himself Wednesday afternoon in the middle of the Dam on fire. WARNING: THE IMAGES ARE VEHEMENTLY. -


"He argued with anybody, everybody out of the way to go, takes a lighter and lights himself on fire," said a witness against NIS Radio1. "Everybody tried to make coats out the fire." He spoke of children he had to eat you. "Another witness said the man had called" lost everything "to be -|+Voorpagina%29&utm_source=feedburner&utm_medium=twitter&utm_content=Twitter

Sudden Debt's picture

Holland... if they don't burn themselves they'll drown once global warming kicks in :)


To bad there weren't any Belgians arround... Otherwise they would have pissed on the guy untill the fires went out.



steve from virginia's picture

God bless the Irish, they quietly drink themselves to death ...

Here's the poor Dutchman on the other hand is beaten to death by passersby with their coats.

Cone of Uncertainty's picture

Haha, I love it, those idiot pedestrians fanning the flames so the man can burn more efficiently!!

Nothing like providing a heightened source of O2 so the fire will burn nice and bright.

What fucking retards.


MachoMan's picture

Stopping trying to save a burning man to tend the fire on your coat FTW!

quark288's picture

With the amount of digital money they have printed, if everyone starts withdrawing cash from the ATM's the world is pretty much going to end up with no trees.

Snidley Whipsnae's picture

Fiat is made from cotton fibers, not trees...So, we would all wind up naked among the forrests...We would not be able to see the trees for the fiat...

the not so mighty maximiza's picture

We will have to wear fruit like in that get smart movie

darkpool2's picture

so whats it to be?  keep kicking the can down the road US style (debt, liquidity baby) or try to start fixing the systemic problems the democratic system has wrought on the national finances and competitiveness. You can hit the wall suddenly with a big splat, or inslow motion ( still an eventual splat)  UK has chosen the latter, but the end result probably will not be less ugly. But please, dont think print and defer is the better solution. REBOOT.

sabra1's picture

the elite bastards who control the banks, etc., want to improvish the world and enslave everyone! they have no intention of fixing anything!

EscapeKey's picture

Don't misunderstand the elite; their interest is in collecting interest and fees. If this can somehow be combined with fixing the problems of the world, then great - otherwise, well, that's just too bad.

New World Chaos's picture

A short, sharp collapse with lots of burning paper is best for us.  The NWO thinks on timescales of beaurocracy, so a drawn-out collapse would allow them to exploit the crisis and consolidate power.

Sudden Debt's picture

Who would have ever thought the Fish&Ships industry would ever decline...



Snidley Whipsnae's picture

England to revert to piracy of Spanish Galleons ladden with gold bullion from the New World...oh wait...England to establish pirate fleet to hijack oil tankers on the high seas...

England does what England does best...

Global Hunter's picture

and the Spanish destroyed the Incas and Aztecs for it, what goes around comes around.  Now all the Europeans have joined together, next stop African resources phase 44.

Fíréan's picture

in reply to :

"Who would have ever thought the Fish&Ships industry would ever decline..."


    The food chain out in the high seas and dependent industry is heavily underwater.

savagegoose's picture

its cheaper to print extra zeros than more notes

EscapeKey's picture

The other day I got bored of the usual "tax the rich" rhetoric and did an admittedly simplistic analysis of the feasibility of doing just that to solve the fiscal problems of the UK. Executive summary - it ain't gonna happen.

EscapeKey's picture


I'm sitting doing some work on the pension cliff we're about to head over, which look not far off as bad as oil imports...

AdTheNad's picture

How about a progressive land tax? 

Something along the lines of 0% for the first £1M of land value, 0.5% from £1M to £2M, 1% on £2M to £3M and so on.

I heard a stat that 70% of the land is owned by less than 1% of the population over here, so you wouldn't even need to ramp up the % very high to soon have substatial tax revenue.

This is what keeps our elite elite, and would help pay the costs of the negative externalities bourne by everyone else when so much land is owned by so few.

EscapeKey's picture

Quite possibly, but it was outside the scope of the post...

Conrad Murray's picture

Nice work, cheers!

The US version for those who haven't seen it yet,

New World Chaos's picture

Well, that's what they get for being the NWO's guinea pig.  But don't worry, the five-year plan calls for a new dawn of prosperity based on more traffic cameras, discrimination lawsuits, wheelie-bin gestappo officers, leveraged gold paper-shuffling, and heaps of child benefits for chavs, yobbos, Gypsies, and Somalis. 

New World Chaos's picture

Thanks.  Here's a couple sick jokes for you:

How many Labour beaurocrats, council snoops, shrinks, lawyers, and social workers does it take to run a forced adoption racket?  Send parents to jail for waving and sending birthday cards?
...stop kids from biking 1 mile to school?
Apocalypse Now!  Mad Max is good for the soul!

writingsonthewall's picture

Please check your sources more carefully before you quote them as gospel.

In this country the daily mail is a bad joke - it's one up from the 'Dandy' and the 'Beano'.

Bubbles the cat's picture
Bubbles the cat (not verified) writingsonthewall Apr 6, 2011 4:09 PM

He he. V amusing. Probably lost on most here.

Hephasteus's picture

Let me see. 15 percent inflation. 1.5 percent drop in gdp. That = 16.5 percent decrease.

Looks bad.

Cash_is_Trash's picture

Yes, that is bad. But in these times of twisted logic:

Bad ≠ Bearish

Cash_is_Trash's picture

Will we have a delicious dip today? Or will it be BULL MARKET?!

Snidley Whipsnae's picture

Bored algos continue soaring while playing multiple 3D chess games...

Hephasteus's picture

Relative to what?

We live in a world with huge inflation and shrinking gdp.

We have a huge bull market that's a bear ripping peoples arms off relative to gold.

You best define your relative boundries before asking such questions.

williambanzai7's picture

Imagine you are a poor working stiff in London where prices are driven by Russian oligarchs, Arab oil princes and Bankstas...

Not a pretty sight.

Cash_is_Trash's picture

London's Burning...overdue aren't we?

samsara's picture

Imagine you are a poor working stiff in London where prices are driven by Russian oligarchs, Arab oil princes and Bankstas...


To be fair, Yes and No.

Has ANY country done ANYTHING in the last 30 years to change our Energy Expectations and Consumption?

Since Jimmy Carter's 'Sweater Speech'?    (Banksters Yes.)

Why are they in the bag with Russian Gas and Oil sellers?

Did they use the North Sea bonanza for the energy well being of their country?  or did they sell it as fast as they could pump it?   How about the US with the North Slope?  Did we use that to make ourselves energy independant?  Fix our Rail Systems?

I think equal blame is on the Drug User as with the Drug Pusher...


falak pema's picture

Fish and chips will be back with a rage wrapped in greasy paper like in my young days!!

Maggie Thatcher must be wanting to emigrate to Chile!

Do you think MU will emigrate to Dubai or Abu Dhabi? Their players are already spending half their lives on their golf courses!

Caviar Emptor's picture

Biflation spreads from US to UK. As the real economy tanks, the paper economy bloats causing inflation despite dropping demand and production. 

Lotsa Luck, British Isles! Welcome to the club.