Bloomberg News

U.K. November Factory Output Falls 0.2% as Economy Weakens

January 12, 2012

(Updates with Bank of England decision in fifth paragraph.)

Jan. 12 (Bloomberg) -- U.K. manufacturing production fell for a second month in November as the weakening economy curtailed demand for metals, wood and paper products.

Factory output declined 0.2 percent from October, when it fell a revised 0.9 percent, the Office for National Statistics said today in London. The fall was in line with the median forecast of 22 economists in a Bloomberg News survey. Overall industrial output, which includes mines, utilities and oil and gas, dropped 0.6 percent as warm weather hit energy demand.

Manufacturers’ prospects are worsening as the euro region edges toward a recession and an austerity drive at home erodes consumer confidence. The German economy contracted in the fourth quarter as the sovereign-debt crisis intensified and a slowdown is under way in China, casting doubt on government hopes that exports and investment will keep the U.K. economy growing.

“Even a rebound in production in December will not be sufficient to prevent the sector from having shrunk in the fourth quarter of last year,” said Joost Beaumont, an economist at ABN Amro Bank NV in Amsterdam. “We expect the U.K. economy to contract modestly in the fourth quarter to first quarter period, which is also likely to induce the Bank of England to keep the printing press running.”

The bank’s Monetary Policy Committee maintained its bond- purchase target at 275 billion pounds ($421 billion) in London today, saying it is keeping the scale of the program under review. Citigroup Inc. and Royal Bank of Scotland Group Plc are among banks saying it will increase the amount next month when current purchases end.

Pound Higher

The pound strengthened against the dollar and was trading at $1.5358 as of 12:14 p.m. in London, up 0.2 percent on the day. U.K. government bonds were little changed, with the 10-year yield at 2.02 percent compared with 2.01 percent yesterday.

Out of 13 manufacturing categories, seven fell on the month and six rose, the statistics office said. The decline was led by metals and metal products, wood and paper goods and chemicals.

The larger-than-expected fall in industrial production was driven by a 2.2 percent drop in mining and quarrying, led by oil and gas. Electricity and gas generation also declined 2.2 percent, reflecting unusually warm weather.

Factory output, which accounts for 10 percent of U.K. gross domestic product, fell 0.9 percent in the three months through November from the June-August period, the biggest decline since August 2009. Industrial production, equal to 15 percent of GDP, also fell 0.9 percent. In November, manufacturing fell 0.6 percent from a year earlier, the first annual decline since January 2010, and industrial production was down 3.1 percent.

Service Sector

“Manufacturing is on course for a fourth quarter contraction,” said Philip Shaw, an economist at Investec Securities in London. “Whether the economy as a whole avoided a contraction depends critically on the service sector. There is a real risk that the fourth quarter gross domestic product figures will post a decline.”

The British Chambers of Commerce said this week its measures of manufacturing export sales and orders fell to the lowest since 2009 in the fourth quarter. With banks planning to tighten lending terms, more stimulus from the Bank of England may not be enough to revive growth, the lobby group said.

Fenner Plc, the world’s largest conveyor-belt maker, acknowledged yesterday there is “uncertainty over the global economic outlook” and said sales growth rates will slow.

--With assistance from Harumi Ichikura in London. Editor: Andrew Atkinson, Eddie Buckle

To contact the reporters on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net; Scott Hamilton in London at shamilton8@bloomberg.net

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


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