Photographer: Krisztian Bocsi/Bloomberg

U.K. Industrial Output Plunges Most in Almost Three Years

  • Production drop due to warmer weather lowering energy demand
  • Manufacturing posts fifth consecutive annual decline

U.K. industrial production fell the most in almost three years in November as warmer-than-usual weather reduced energy demand.

Output dropped 0.7 percent from the previous month, with electricity, gas and steam dropping 2.1 percent, the Office for National Statistics said in London on Tuesday. Economists had forecast no growth on the month.

The data highlight the uncertain nature of U.K. growth, which remains dependent on domestic demand and services. After stagnating in October and falling in November, industrial production will have to rise 0.5 percent to avoid a contraction in the fourth quarter. Hindering that by curtailing export sales is the level of sterling, which, despite falling since mid-November on a trade-weighted basis, is still about 15 percent higher than March 2013.

“It seems likely that manufacturing output will do little better than flatline in the final quarter as a whole,” said Ruth Miller, an economist at Capital Economics Ltd. in London. “Given the strong pound and the continued weakness of demand in the neighboring euro zone, we doubt that the recovery in the export-orientated manufacturing sector will get back on track soon.”

The British currency fell as low as $1.4441 after the data, its weakest level since June 2010. It was trading at $1.4445 as of 10:55 a.m. London time, down 0.7 percent from Monday.

Factory Woes

Manufacturing also delivered a worse-than-forecast performance in November, with output dropping 0.4 percent on the month and by 1.2 percent from a year earlier, the biggest annual decline since July. Factories reduced output in each of the past two quarters.

The data follow other reports of weakness in the manufacturing sector. A survey published by Markit this month showed growth cooled in December, suggesting it made little contribution to the economy in the fourth quarter.

According to manufacturers’ organization EEF, companies are feeling increasingly pressured by issues such as the strength of the pound. It said on Monday that only 56 percent of manufacturers say the U.K. is a competitive location, compared with 70 percent a year ago.

Bank of England officials will probably keep their key interest rate at a record-low 0.5 percent this week. Minutes of the meeting released Thursday may reveal their thinking on the fall in oil prices and worries about China’s economy.

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