U.K. Factory Output Declines More Than Forecast, Exports Plunge

U.K. August Manufacturing Output Declines More Than Forecast
Factory output dropped 1.1 percent from July, when it rose 3.1 percent, the Office for National Statistics said today in London. Photographer: Paul Thomas/Bloomberg

U.K. manufacturing fell more than economists forecast in August and the trade gap widened, indicating the economy may struggle to regain strength.

Factory output dropped 1.1 percent from July, when it rose 3.1 percent, the Office for National Statistics said today in London. The median forecast of 25 economists in a Bloomberg News survey was for a decline of 0.7 percent. Overall industrial output fell 0.5 percent, matching economists’ forecasts. The goods-trade deficit widened as exports fell.

The International Monetary Fund cut its global economic forecasts and warned of even slower expansion unless officials in the U.S. and Europe address threats to their economies. It also lowered its projections for the U.K., where Bank of England officials are facing a decision next month on whether to expand stimulus for the economy again. Governor Mervyn King is due to speak in London later today.

“The economy may still pull out of its recession in the third quarter, but a return to contraction in the fourth quarter cannot be ruled out,” said Chris Williamson, an economist at Markit Economics in London. “The underlying growth momentum clearly remains extremely weak.”

The pound declined for a second day against the dollar, slipping 0.1 percent to $1.6015 as of 10:46 a.m. in London.

Summer Holidays

Out of 13 categories in manufacturing, 10 fell in August from July, two rose and one was unchanged, the statistics office said. Transport equipment plunged 4.5 percent because of summer closures at automobile factories.

The ONS said some anecdotal evidence suggested that “some businesses had longer summer closures in August 2012, or that closures were held later than in previous years.” This affected monthly transport data “in particular,” it said.

Within industrial production, mining and quarrying rose 1.4 percent in August, while oil and gas increased 2.1 percent. From a year earlier, both manufacturing and overall industrial output fell 1.2 percent in August.

In a separate report, the goods-trade deficit widened to 9.84 billion pounds ($15.8 billion) in August from 7.34 billion pounds in July. Exports plunged 4 percent and imports rose 4.5 percent. There was a surplus in services of 5.68 billion pounds in August, leaving a total trade gap of 4.17 billion pounds.

Mixed Picture

While Britain’s economy probably returned to growth in the third quarter after shrinking 0.4 percent in the three months through June, recent reports have painted a mixed picture of the recovery.

Gauges of services and manufacturing published by Markit declined in September, while the IMF cut its U.K. economic outlook. The fund now sees the economy shrinking 0.4 percent this year before expanding 1.1 percent in 2013. It previously projected growth of 0.2 percent and 1.4 percent in those years.

The IMF also said the Bank of England may need to expand stimulus again. The central bank is currently in the last month of a 50 billion-pound round of quantitative easing that is due to be completed in November. King will speak at the London School of Economics at 6:30 p.m. local time, and officials hold their next policy meeting on Nov. 8.

In its World Economic Outlook, the IMF said the global economy will grow 3.3 percent this year, the slowest since the 2009 recession, and 3.6 percent next year. That compares with July predictions of 3.5 percent and 3.9 percent. It said the euro area will contract 0.4 percent this year and grow 0.2 percent in 2013.

With the global economy under pressure, “weak trends” in U.K. data “will probably continue in the short-term,” said Nida Ali, an economist at the Ernst & Young ITEM Club in London. “But providing that the euro-zone remains intact and drags itself out of recession, we are more optimistic about the prospects for U.K. manufacturers and exporters further out.”

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