UK's manufacturing output declined less than expected in March and marked its smallest fall in 13 months, while trade deficit narrowed more than anticipated, official data showed Tuesday.

The Office for National Statistics, or ONS, said British manufacturing production fell 0.1% month-on-month in March, taking the annual decline to 12.9%. Meanwhile, economists were expecting a 0.8% monthly decline and an annual 14% fall. The monthly decline was the lowest in 13 consecutive months.

According to the ONS, the most significant decreases in output were 3.9% in the machinery and equipment industries and 1.5% in the basic metals and metal products industries.

The March fall in manufacturing output was less than expected but the sector still faces real threats, David Kern, chief economist at the British Chambers of Commerce said.

Although many firms are viable and productive, they face considerable risks to their skills base. Unless the government takes further specific action to help manufacturers maintain these precious skilled jobs, the sector and the wider UK economy will suffer, Kern added.

The statistical office also said manufacturing output in the first quarter decreased 5.5% compared with the previous quarter and was lower by 13.1% against the first quarter of 2008. The quarterly decline was the worst since 1948.

Meanwhile, industrial production recorded a monthly decline of 0.6% in March, slower than the expected fall of 0.9%. Annually, production fell 12.4% in March, the biggest decline since records began in 1968. However, it was smaller than the 12.8% contraction forecast. In the first quarter, industrial output slipped 5.3% compared with the previous quarter and was 12.1% lower than the first quarter of 2008.

In a separate release, the ONS said UK's deficit on trade in goods and services narrowed to GBP 2.5 billion in March from February's revised deficit of GBP 2.8 billion, which was originally published as a deficit of GBP 3.2 billion.

The visible trade deficit decreased to GBP 6.6 billion from a revised GBP 6.8 billion shortfall logged in February, while the surplus on trade in services was GBP 4.1 billion, the same as in February. Exports of goods fell 0.5% month-on-month, while imports recorded a 1.4% contraction. The goods trade deficit was the least since April 2007.

The deficit with EU countries was GBP 3.3 billion in March, compared with a deficit of GBP 3.1 billion in February and that with non-EU countries narrowed to GBP 3.3 billion from a deficit of GBP 3.7 billion in February.

Earlier in the day, a survey from the Royal Institution of Chartered Surveyors or RICS showed that there are tentative signs of a pick-up in the UK housing activity.

Commerzbank analyst Peter Dixon said the most recent batch of data releases suggests that the UK economy is now contracting at a slower pace than at the start of the year.

In the fourth quarter, the British economy had slipped into its biggest contraction since the third quarter of 1979. The gross domestic product declined 1.9% in the first quarter.

According to the Spring Forecast of the European Commission, the British economy would possibly shrink 3.8% in 2009, before recovering by a slight 0.1% next year. The International Monetary Fund sees a 4.1% contraction this year and a 0.4% fall next year.

On May 7, the Bank of England retained the Bank Rate at a historical low of 0.5% and decided to continue with its scheme of asset purchases financed by the issuance of central bank reserves. The central bank also raised the size of the scheme by GBP 50 billion to GBP 125 billion.

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