Industrial Output Plunges In August

(Reuters) – INDUSTRIAL OUTPUT PLUNGED unexpectedly in August and at its sharpest monthly pace since January, according to official data, denting hopes for a strong rebound in growth in the third quarter of this year.

The Office for National Statistics said manufacturing output fell 1.9% on the month, confounding analysts’ expectations for a 0.3% rise. July’s increase was revised down to 0.7% from 0.9%.

The wider measure of industrial output, which includes power generation and resource extraction, fell by 2.5% on the month, also the sharpest drop since January and against forecasts for an increase of 0.2%.

August’s falls in output more than offset the gains recorded in the previous two months, and, although industry accounts for just 17% of the economy, lessened the chance that Britain has emerged from recession after more than a year in decline.

Analysts now reckon GDP will barely enter positive territory in Q3 and even then only if services output recovers strongly.

‘August’s dismal industrial production figures will dampen some of the recent optimism about the economy’s apparent bounce-back,’ said Vicky Redwood of Capital Economics.

‘Accordingly, a return to positive overall GDP growth in Q3 now looks less certain,’ she added.

The pound fell to a one-week low against the euro and gilt futures hit a contract high as investors scaled back their expectations for a quick recovery and bet that monetary policy would have to remain loose for some time yet.

‘This is a bit of a reality check on the status of the UK economy,’ said Philip Shaw, economist at Investec.

Bank of England policymakers have expressed concern about the strength of any upturn in the economy and Tuesday’s data will reinforce their view that Britain is in for a long, hard slog back to growth, even though some forward-looking indicators have improved in recent months.

UK Cost Of Living Falls Most Since 1948

(Telegraph) – THE COST OF LIVING in Britain last month fell the most since records began more than half a century ago, as the recession drove down the cost of food and housing.

The broad measure of inflation, known as RPI, slumped 1.6% on an annual basis — its steepest decline since statisticians began compiling the figures in 1948. Compared with May, RPI climbed 0.3% — in line with City expectations.

Prices for a range of staples — including meat, bread, fruit, vegetables and dairy products — all fell as retailers sought to keep a lid on prices to attract shoppers.

The figures underline how the recession, which began in the second quarter of last year, has drained pricing power across the economy. The Bank of England has signalled it expects to keep interest rates at a record low of 0.5% in an effort to provide some life support to the economy.

We still believe ‘the bulk of the disinflationary effects of the deep recession in the economy have yet to be seen,’ said Jonathan Loynes, an economist at Capital Economics.