BRITISH manufacturing output grew slightly in February, according to official data published yesterday, but it still badly trailed the service sector, highlighting a dilemma for the new government after the general election.

The Office of National Statistics (ONS) said manufacturing output grew 0.2 per cent in February for year on year growth of 1.8 per cent. The wider measure of industrial production, which includes utilities output, fell by 0.6 per cent in February. Despite the small pick up in manufacturing, growth in the export dependent sector is very sluggish.

Economists said this suggested an imbalance in the economy and presented a dilemma for the incoming Chancellor of the Exchequer in gauging the correct mix of monetary and fiscal policy.

Sterling has rallied steadily over the last eight months, raising fears that the high exchange rate is hitting exports by pushing up prices for overseas buyers.