Bloomberg News

U.K. Manufacturing Output Falls as Recovery Doubts Persist

October 11, 2011

(Updates with comment from economist in fourth paragraph.)

Oct. 11 (Bloomberg) -- U.K. manufacturing fell more than economists forecast in August, adding to signs that the recovery continued to struggle in the third quarter.

Factory output fell 0.3 percent from July, when it declined a revised 0.2 percent, the Office for National Statistics said today in London. The median forecast of 24 economists in a Bloomberg News survey was for manufacturing to fall 0.2 percent. Overall industrial output, which includes mining and oil and gas, rose 0.2 percent on the month.

The Bank of England reactivated emergency stimulus last week amid concerns the European debt crisis and slowing global growth threaten the U.K. recovery. The British Chambers of Commerce said today the new round of so-called quantitative easing may not be enough and “more radical measures” are needed to prevent the economy slipping into recession.

“It’s not a great number and there’s no sign of these problems going away,” said Alan Clarke, chief U.K. economist at Scotia Capital Europe Ltd. in London. “Manufacturers should be pretty cautious right now.”

The pound extended its decline against the dollar after the data were published. It traded at $1.5618 as of 9:51 a.m. London time, down 0.3 percent from yesterday.

Third Monthly Decline

The monthly decline in manufacturing was the third in succession and the biggest since April. Out of 13 categories, six rose and seven declined, the statistics office said. The decline was led by wood and paper products, basic metals and metal products. On the year, manufacturing rose 1.5 percent.

The statistics office produced new categories within the manufacturing data. Consumer durables fell 0.5 percent in August from July and capital goods slipped 0.1 percent.

Overall industrial production fell 1 percent in August from a year earlier, according to the statistics office. Under new weightings, production accounts for 15.4 percent of the economy, while manufacturing makes up 10.3 percent.

The Bank of England, which left its benchmark interest rate at a record-low 0.5 percent on Oct. 6, raised the ceiling for QE to 275 billion pounds ($430 billion) from 200 billion pounds. That’s the biggest expansion since the first round of stimulus in March 2009.

Bank of England policy maker David Miles said late yesterday that recent economic news has been “overwhelmingly negative” and sentiment in financial markets has deteriorated.

“There doesn’t seem to be much of a glimmer on the horizon for manufacturers,” said Philip Shaw, chief economist at Investec Securities in London. He expects a further 50 billion- pound expansion of QE in February.

Britain’s economy grew just 0.1 percent in the second quarter, less than previously estimated, raising concern the U.K. economy may be headed for another recession. Smiths Group Plc Chief Executive Philip Bowman said on Sept. 28 that the “economic outlook remains uncertain.”

A BCC survey today showed measures of domestic and export sales at manufacturers and services companies declined in the third quarter. Confidence also fell.

--With assistance from Mark Evans in London. Editors: Fergal O’Brien, Andrew Atkinson

To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net

To contact the editor responsible for this story: Craig Stirlings at cstirling1@bloomberg.net


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