U.K. Recession Risk Rises as Industry Weakness Persists: Economy

U.K. industrial production rose less than economists forecast in November and manufacturing unexpectedly fell, increasing the risk the economy is heading for a triple-dip recession.

Output rose 0.3 percent from October, when it fell 0.9 percent, the Office for National Statistics said today in London. Economists had forecast a 0.8 percent increase, according to the median of 25 estimates in a Bloomberg News survey. Factory production declined 0.3 percent.

Britain’s economy is struggling to gain traction after emerging from a recession in the third quarter as a slump in the euro area and government budget cuts add to pressure from weak household spending. The Bank of England left its bond-buying program on hold yesterday as it assesses early signs of success in its credit-boosting plan aimed at encouraging lending growth.

“The risks of a triple-dip have increased with today’s figures,” said Rob Wood, an economist at Berenberg Bank in London and a former central bank official. “The BOE will probably stick to their view for a while longer, but expect further stimulus in the second half of the year.”

The pound extended its decline against the dollar after the data were published. It was trading at $1.6121 as of 3:30 p.m. London time, down 0.3 percent from yesterday.

The National Institute of Economic and Social Research estimated today that fourth-quarter gross domestic product contracted 0.3 percent from the previous three months, based on the production data.

Manufacturing Weakness

The monthly drop in factory output in November compared with economists forecasts for an increase of 0.5 percent. Out of 13 categories in manufacturing, nine fell and four rose in November from October. From a year earlier, manufacturing fell 2.1 percent, while total industrial output declined 2.4 percent.

Within industrial output, oil and gas extraction surged 11.3 percent, the most since records began in 1968. It dropped 23.7 percent in September and 4.8 percent in October, partly due to the shutdown of the Buzzard oilfield in the North Sea.

The economy has shown mixed signals in recent weeks. Services and construction shrank in December, while manufacturing growth accelerated to the fastest in 15 months. Markit Economics said the surveys are consistent with the economy contracting by about 0.2 percent in the fourth quarter. The first quarter’s performance may be hindered by poor weather, it said today.

“There are signs that the situation in manufacturing improved in December,” said Markit economist Chris Williamson. “But a deteriorating trend in the far larger services sector and forecast of heavy snow for January have raised the possibility that the economy could contract in the first quarter, meaning the country slid into a triple-dip recession.”

Japan Stimulus

Elsewhere, the Japanese government said today it will spend 10.3 trillion yen ($116 billion) to drive a recovery from recession, in Prime Minister Shinzo Abe’s first major policy initiative to end deflation and boost growth.

About 3.8 trillion yen will be for disaster prevention and reconstruction, with 3.1 trillion yen directed to stimulating private investment and other measures, according to a statement released by the Cabinet Office. Extra spending will increase gross domestic product by about 2 percentage points and create about 600,000 jobs, the government said.

Chinese inflation was a more-than-forecast 2.5 percent in December, a seven-month high, as the coldest winter in 28 years pushed up vegetable prices. Also today, the Bank of Korea held borrowing costs unchanged for a third month amid promises from incoming President Park Geun Hye to increase efforts to support economic growth and create jobs.

Construction Slump

In the U.K., the ONS said that construction output fell 3.4 percent in November from October and was down 9.8 percent from a year earlier. The data is not seasonally adjusted.

The trade deficit in the U.S. unexpectedly widened in November as retailers stocked up on imported goods for the holidays and demand for foreign cars rebounded following superstorm Sandy. The gap widened 15.8 percent to $48.7 billion, against economists’ forecasts for the gap to narrow to $41.3 billion.

The U.S. import-price index rose 0.1 percent in December after a revised 0.8 percent plunge a month earlier, in line with the Bloomberg survey median.

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