U.K. Manufacturing Increased Less Than Forecast in September
U.K. manufacturing output gained less than economists forecast in September as machinery and chemical production declined, adding to evidence that the economy’s rebound is losing momentum.
Factory output rose 0.1 percent from August, the Office for National Statistics said today in London. The median forecast of 30 economists in a Bloomberg News survey was for an increase of 0.4 percent. Total industrial output plunged 1.7 percent as oil and gas output dropped by a record due to maintenance of sites.
While the U.K. emerged from recession in the three months through September with the strongest growth since 2007, recent reports have shown signs of weakness at the start of the fourth quarter. The data clouds the outlook as the Bank of England Monetary Policy Committee starts a two-day meeting tomorrow to decide whether to expand quantitative easing after completing its latest bond-purchase round last week.
“The economic recovery is quickly losing momentum,” Samuel Tombs, an economist at Capital Economics Ltd. in London, said in a research note. “While the MPC may pause QE at its meeting later this week, if the economic data remain weak then it may not be long before the committee is forced to provide the economy with further stimulus.”
The ONS revised its estimate for third-quarter industrial production to an increase of 0.9 percent from the 1.1 percent estimated in its gross domestic product report published last month. Still, it said the impact of the revision on the GDP data is “minimal.”
Oil and Gas
The pound weakened against the dollar and was trading at $1.5986 as of 12:02 a.m. in London. Government bonds were little changed, with the yield on the benchmark 10-year gilt at 1.81 percent.
The monthly drop in total industrial output, which includes mining and quarrying and utilities, compared with the median forecast of 30 economists in a Bloomberg survey for a 0.6 percent decrease. Excluding June, when there was an extra public holiday for the queen’s jubilee, the decline was the biggest since August 2009.
The drop in production was led by oil and gas, which plunged 20.9 percent from the previous month, the most since records began in 1997. That knocked 1.9 percentage points off total industrial production in September. The ONS said the data are very volatile on a monthly basis. Mining and quarrying dropped 15.3 percent, the most since 1974.
Out of 13 categories in manufacturing, six declined and seven rose in September from August, the statistics office said. The main increases were recorded in basic pharmaceuticals, transport equipment and computer and electronic products.
From a year earlier, factory production fell 1 percent in September and total industrial output declined 2.6 percent.
While the decline in overall production may have little impact on the third-quarter GDP data, it could have a “sizable effect” on the current quarter “as the level of output going into the quarter is much lower than had been anticipated,” said George Buckley, an economist at Deutsche Bank AG in London. He said the factory data provide “more evidence on the fragility of the recovery, and suggests a close MPC vote” this week.
After the third-quarter GDP rebound, Bank of England Chief Economist Spencer Dale said there may be a “sharp fall back” this quarter. U.K. surveys in the past week showed a slump in manufacturing deepened in October, while services growth cooled.
The Bank of England will probably leave the target for asset purchases at 375 billion pounds ($599 billion) on Nov. 8, according to 35 of 45 economists in a Bloomberg News survey. Six forecast a 50 billion-pound increase in quantitative easing, and four expect a 25 billion-pound expansion.
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