Sept. 6 (Bloomberg) -- U.K. manufacturing production rose for a second month in July, adding to evidence of an accelerating economy that has led investors to bet the Bank of England will raise interest rates earlier than it has projected.
Factory output rose 0.2 percent from June, when it gained 2 percent, the Office for National Statistics said today in London. The increase was in line with the median forecast of 23 estimates in a Bloomberg News survey. Industrial output was unchanged as warm weather reduced demand for energy. The trade deficit widened a nine-month high in July as exports to countries outside the European Union plunged.
The data follow business surveys this week showing services and construction at their strongest since the financial crisis last month and manufacturing at a 2 1/2 year high. The improving economy helped to push the 10-year gilt yield above 3 percent yesterday for the first time since 2011 after the Bank of England left policy unchanged without an explanatory statement.
“The industrial sector is still doing well, although the drop in exports is something of a concern,” said Samuel Tombs, an economist at Capital Economics Ltd. in London. “Today’s trade figures could be an early warning that the economy cannot depend on the strong support that it received from net trade in the first half of the year for much longer.”
The pound erased gains against the dollar after the data were released and was trading at $1.5577 as of 11:36 a.m. London time, down 0.1 percent on the day. Sterling snapped a seven-day advance versus the euro. The 10-year gilt yield was down 2 basis points at 2.99 percent.
Warm temperatures in July boosted demand for beverages as well as water to fill paddling pools and water gardens, the ONS said. At the same time, it damped demand for gas and electricity, with utilities output falling by 2.2 percent.
Signs of a more buoyant economy are also boosting house prices, with Halifax saying values rose for a seventh month in August and will probably continue to increase through the rest of the year.
The risks to the recovery were highlighted in a separate report showing the goods-trade deficit widened to 9.85 billion pounds ($15.3 billion) in July, the most since October last year. Exports fell 7.6 percent, with shipments to nations outside the EU plunging 16 percent, the most since January 2009. Overall imports declined 1 percent.
The drop in sales to non-EU nations was led by finished manufacturing, machinery and transport gear and aircraft, the ONS said. Exports to EU countries rose 1.3 percent.
In Europe, Germany’s economic recovery showed signs of moderating. Exports unexpectedly declined 1.1 percent from June when adjusted for working days and seasonal changes, the Federal Statistics Office said today.
Separate data by the Economy Ministry showed German industrial production fell more than forecast in July after surging in June. In France, exports rose 1.3 percent in July from a month earlier, data showed today.
“There was a very strong rise in the previous month and it can’t continue at that tempo, even if overall the outlook is positive,” Heinrich Bayer, an economist at Deutsche Postbank AG in Bonn, said of today’s German data.
In the U.K., market yields suggest investors think the Bank of England will have to raise interest rates before the end of 2016, as signaled by Governor Mark Carney when he introduced forward guidance on Aug. 7.
Carney got a boost today with a BOE report showing public expectations for a rate increase in the coming year fell to the lowest since the aftermath of the collapse of Lehman Brothers Holdings Inc.
Twenty-nine percent of people expect an increase, down from 34 percent in May, the BOE said in its quarterly Inflation Attitudes survey. That’s the lowest since November 2008 and the fourth lowest since the survey began in 1999.
Under the new policy framework, policy makers won’t consider raising the benchmark interest rate from a record-low 0.5 percent until unemployment falls to 7 percent from its current rate of 7.8 percent. The pledge is subject to a so-called knockout if inflation expectations become dislodged.
The U.K. economy saw expansion across all sectors in the second quarter, and a 0.9 percent gain in industrial production in the three months through July may boost expectations investment will again contribute to growth this quarter.
The Organization for Economic Cooperation and Development lifted its 2013 U.K. growth forecast this week to 1.5 percent from 0.8 percent, with a 0.9 percent expansion in the current quarter.
The widening of the trade deficit, though, casts doubt on the contribution of net trade. Between May and July the overall deficit including services widened to 6.14 billion pounds from 5.84 billion pounds in the period through April.
In July, the total trade deficit widened to 3.09 billion pounds from 1.26 billion pounds the previous month as Britain recorded its smallest surplus in services since January.
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