October Manufacturing Output Decline Greater Than Forecast on Euro Crisis

U.K. manufacturing output fell more than economists forecast in October as the intensifying euro- area debt crisis undermined demand in Britain’s biggest export market.

Factory output dropped 0.7 percent from September, the biggest decline since April, the Office for National Statistics said today in London. The median forecast of 21 economists in a Bloomberg News survey was a decline of 0.3 percent. On the year, manufacturing rose 0.3 percent, the least since January 2010.

Manufacturers are suffering as the sovereign debt crisis and a cooling global economy jeopardize the outlook for exports. As the risks from Europe increase, some Bank of England policy makers have said the economy will probably need more stimulus. The central bank will leave the target for bond purchases unchanged after a meeting tomorrow, according to a survey of economists.

The data “are pretty disappointing,” James Knightley, an economist at ING Bank in London, said in an e-mailed note. “This report increases the probability that we will see a negative GDP reading for the fourth quarter, but is unlikely to directly impact on the current Bank of England monetary policy meeting.”

The pound pared its gain against the dollar after the report. It traded at $1.5616 as of 9:54 a.m. in London, up 0.1 percent from yesterday.

Energy Demand

Out of 13 categories of manufacturing, eight fell and five rose in October from the previous month. The decline was led by industries including basic metals and pharmaceuticals, the statistics office said.

Overall industrial production, which includes utilities, mining and quarrying and accounts for about 15 percent of the economy, dropped 0.7 percent in October on the month. Economists predicted a 0.3 percent decline, the median of 25 forecasts in a Bloomberg survey shows. Electricity and gas supply plunged 4.9 percent, as the warmest October since 2006 curbed energy demand.

Surveys last week showed China’s manufacturing contracted in November for the first time since February 2009, while in Britain and the 17-nation euro area the sector shrank at the fastest pace in about 2 1/2 years. A U.K. manufacturing survey published by the Engineering Employers Federation on Dec. 5 showed companies predict flat output and a “modest contraction” in orders in the first quarter.

Sales Fall

Smiths Group Plc (SMIN), the world’s biggest supplier of mechanical seals to energy and marine clients, said on Nov. 22 that first-half sales at its security detection unit will fall from a year earlier as demand from military clients declines.

Chancellor of the Exchequer George Osborne said last week British economic growth will be slower this year and next than previously forecast. In addition to weaker global demand, Britain’s recovery is being restrained by Osborne’s fiscal squeeze to reduce the budget deficit.

All 39 economists in a Bloomberg News survey forecast the Bank of England’s Monetary Policy Committee will keep the target for asset purchases at 275 billion pounds ($430 billion) tomorrow after raising it in October. The MPC will also keep its benchmark interest rate at a record-low 0.5 percent, according to a separate survey. The central bank will announce the decisions at noon tomorrow.

To contact the reporter on this story: 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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