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.