U.K. Factories Increase Production As North Sea Oil Recovers

        By Jon Sindreu and Jason Douglas
        LONDON--British industries ramped up production in March after going through a lull in recent months, adding to hopes the U.K. economy slowed less than previously thought during the first quarter of 2015.
        U.K. industrial output rose 0.5% on the month, the Office for National Statistics said Tuesday, compared with 0.1% growth in February. This was higher than analysts polled by The Wall Street Journal last week were expecting.
        The sector had struggled in recent months due to a fall in oil and gas production in the North Sea, as oil prices tumbled to new lows in the international markets. However, the extraction industry posted a strong recovery in March and increased its output at the fastest pace in more than a year, just as global oil prices started climbing back up.
        An improvement in Britain's industrial sector, which added to the recovery in 2014, is a sign the U.K. economy will remain healthy into 2015. Previous official data believed factories were a drag for economic growth during the first quarter, but Tuesday's figures showed they actually made a small positive contribution to gross domestic product.
        According to early estimates released last month, Britain's GDP expanded 0.3% in the three months to March, a much slower pace of growth than in the final quarter of 2014. The fact industrial production was stronger than previously thought raises hopes that the disappointing GDP growth figure could be revised upwards, although the ONS warned the impact is likely to be small.
        Britain's growth is mostly driven by its powerhouse service sector, which makes up about 80% of the economy, but a lackluster contribution from factories--as well as construction--had raised concerns of a lopsided recovery. Economists underscore overreliance on consumer spending could threaten medium-term economic health if oil prices rise again and households are squeezed out of their newly gained purchasing power.
        Nevertheless, many analysts believe factories in the U.K. are likely to regain some strength during the second quarter of the year, as the economy of the eurozone starts to recover and an uncertain general election--with the prospect of a hung British Parliament--is left behind. Against all forecasts by pollsters, Prime Minister David Cameron and his Conservative Party achieved a parliamentary majority in the vote last Thursday, which many economists believe should ensure a stable government and return confidence to businesses to invest and ramp up production.
        Write to Jon Sindreu at jon.sindreu@wsj.com and Jason Douglas at jason.douglas@wsj.com
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        May 12, 2015 04:38 ET (08:38 GMT)

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