(Adds reaction, detail)
By Christina Fincher and Sumeet Desai
LONDON, April 7 (Reuters) - British industrial output suffered its biggest annual drop in February since records began 40 years ago, highlighting the extent to which the sector is being hit by the global downturn.
Official data on Tuesday showed industrial production fell for a 12th consecutive month in February, by 1 percent. Although the monthly drop was slightly less than forecast, it took the annual rate of decline to 12.5 percent, the sharpest fall since the series began in 1968.
The narrower measure of manufacturing output also fell for a 12th consecutive month to notch up its longest losing streak since the recession of the early 1980s.
"At some point sterling's decline will provide some support to the sector but a lot depends on our main export markets," said Mark Miller at HBOS.
"It is going to be a while before the manufacturing sector sees a little bit of light."
When the credit crisis began more than a year ago, economists expected Britain's dominant services sector to be the hardest hit. Manufacturers, they thought, would be able to take advantage of sterling's weakness to lead the country out of recession.
Such hopes now look misplaced. A survey by the British Chambers of Commerce on Tuesday showed that the pace of contraction in services eased in the first quarter of this year while manufacturing plumbed new depths. [ID:nL6115238]
GLOBAL MANUFACTURING SLUMP
Britain is not alone in suffering record declines in industrial output. The widespread nature of the downturn and the drying up of trade finance has caused pain to manufacturers around the world.
Indeed, the OECD is forecasting that Germany and Japan -- the world's biggest exporters of manufactured goods -- will contract even faster this year than Britain and the United States.
World leaders at the G20 summit in London last week agreed to fund a $250 billion package to support trade finance but industry bodies have questioned how effective it will be, particularly for small companies. Industrial production makes up almost a fifth of British economic output while manufacturing, which excludes energy production, accounts for around 14 percent.
The statistics office said car production and metal products had been particularly hard hit in February, pushing manufacturing output down 0.9 percent on the month and 13.8 percent on the year.
New car sales in Britain were almost 30 percent lower in the first three months of this year than a year ago, equivalent to 200,000 fewer cars sold. Many car plants have moved to a four-day working week or shut down altogether.
Britain's economy contracted by 1.6 percent in the fourth quarter of last year and first quarter figures, due on April 24, are expected to show another hefty decline.
The only factor arguing for a smaller fall than in Q4 is the fact that firms have already run down inventories at a record pace.
"It may well be that the numbers around the turn of the year were extraordinarily weak. As factories start opening up after those shutdowns, the pace of contraction will be less," said Alan Clarke, UK economist at BNP Paribas.
(Editing by Stephen Nisbet)