Factory Production in U.K. Grows More Than Forecast as Recovery Maintained

U.K. manufacturing expanded twice as much as economists forecast in October, a sign the recovery is maintaining momentum into the final quarter of the year.

Output rose 0.6 percent from September, the most in seven months, the Office for National Statistics said today in London. The median forecast of 23 economists in a Bloomberg News survey was for an increase of 0.3 percent. Overall industrial output fell 0.2 percent as utilities and mines cut production.

Prime Minister David Cameron is relying on exports and investment to keep the economy growing as the government prepares to step up the pace of spending cuts and increase value-added tax on sales to tackle the record budget deficit.

“They’re a good set of figures,” David Tinsley, an economist at National Australia Bank in London and a former Bank of England official, said in a telephone interview. “The underlying momentum is pretty sound. Things are looking all right for fourth-quarter GDP.”

The pound lost gains made after the report and was trading at $1.5783 as of 11:18 a.m. in London, up 0.4 percent on the day.

The Bank of England is this week forecast to keep its bond- purchase plan at 200 billion pounds ($313 billion). Policy makers remained split last month on whether the economy faces a greater risk from slowing growth or faster inflation.

Capital Goods

Factory output grew in October for the sixth month in succession. Out of 13 categories, eight rose, led by transport equipment. Two fell, led by food, drink and tobacco. Output of capital goods rose 1.8 percent, with engineering and allied industries posting a 2 percent increase. Production of consumer durables declined 1.3 percent.

Recent reports suggest the recovery is persisting after the economy posted its fastest growth spurt in a decade in the second and third quarters.

A Chartered Institute of Purchasing and Supply index published last week showed manufacturing growth unexpectedly accelerated to the fastest pace in 16 years in November, with the weaker pound boosting demand for British goods abroad.

Bath, western England-based Rotork Plc, a maker of industrial valve controls, said on Nov. 19 that orders were 28 percent higher in the third quarter and the full-year profit outlook is in line with previous guidance.

Officials still caution that the budget squeeze, which is forecast to lead to the loss of 330,000 public-sector jobs, may hurt economic growth.

‘Sluggish’

The Treasury’s fiscal watchdog said on Nov. 29 that the British economy faces a “sluggish” medium-term outlook and cut its 2011 growth forecast to 2.1 percent from 2.3 percent.

Manufacturing rose 5.8 percent in October from a year earlier. Overall industrial production, which also includes utilities, mining and quarrying and accounts for 17 percent of the economy, increased 3.3 percent.

Output in the mining and quarrying industry fell a monthly 4.2 percent in October, the biggest drop since June. Oil and gas output declined 4.2 percent. Earlier maintenance work in North Sea oil fields has led to complications with seasonal adjustment of the figures, the statistics office said. Utilities’ output declined 1 percent.

Bank of England policy makers will leave the size of the bank’s bond holdings unchanged on Dec. 9, according to all 34 economists in a Bloomberg News survey. They will also keep the benchmark interest rate at a record low of 0.5 percent, all 58 economists in a separate survey said.

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

To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net

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