Chancellor George Osborne, pictured in Downing Street today, was told by Labour to 'pull his head out of the sand'
The Chancellor was forced to defend his support for industry, after it emerged manufacturing output slid by 1.5 per cent during a snow-hit January.
With just days before the Budget, it emerged the government’s flagship multibillion-pound Funding for Lending scheme – criticised for a lack of money flowing to businesses – is to be ‘put on steroids’ to speed up the flow of credit from banks.
The latest gloomy figures from the Office for National Statistics (ONS) put further pressure on the pound, which declined to a new two-and-a-half-year low of 1.48 against the US dollar.
At the end of 2012 the UK economy shrank by a worse-than-expected 0.3 per cent. If the first three months of 2013 sees another decline it will mean Britain is back in recession.
Samuel Tombs, UK economist at consultancy Capital Economics, said: ‘January's figures do little to ease fears that GDP may still be contracting and that the economy could therefore be in a triple-dip recession.’
Howard Archer, chief UK and European economist at IHS Global Insight, added: ‘The manufacturing figures are awful, even if it is possible that the snow had more of a negative impact than the ONS indicate, and are a real blow to first quarter growth prospects.’
In the Commons, Mr Osborne came under fire from Labour over the ‘terrible figures’ revealing a decline in manufacturing.
New figures from the Office for National
Statistics show how manufacturing output in January dropped 1.5%
year-on-year, after a rise in December
She told Mr Osborne to ‘pull his head out of the sand and see that his plan is clearly failing’.
But Mr Osborne said the manufacturing sector halved as a share of the British economy when Labour was in office and the Government has taken steps to support manufacturers.
He told MPs: ‘We've got to get behind the private sector, we've got to get behind business and that is exactly what this Government is doing.’
The manufacturing decline, which followed signs of improvement in December, meant overall industrial output dropped by 1.2% in January, dashing City hopes for a better performance over the month.
Other factors behind the fall included the closure of the Schiehallion oil platform, which drove a 4.3% slide in oil and gas output.
The Chancellor insisted he was getting behind the private sector, and vowed to do more to boost manufacturing
Lee Hopley, chief economist at EEF, the manufacturers' organisation, said: ‘The main takeaway from the data so far this year is that much of manufacturing is facing an uphill challenge to grow in a difficult global demand environment.’
Downing Street insisted there would be no change of strategy. David Cameron’s official spokesman said the government was ‘committed to sticking to the course’ and claimed: We are beginning to see signs is working.’
However, it also emerged today that the government’s Funding for Lending is to be bolstered in an attempt to get force banks to lend.
Efforts will be directed efforts at small businesses rather than mortgages as it has so far offered little help to firms.
Deputy Prime Minister Nick Clegg is said to want to put the FLS ‘on steroids’ after figures last week revealed that net lending in the quarter to December fell by £2.4 billion on the previous three months, according to the Financial Times.
It is understood the Government is considering splitting the scheme into two, as banks that are currently shrinking their legacy mortgage books are not able to qualify for the cheapest rates, which is holding back improvements in business lending.
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