Industrial output plunges in August

By Fiona Shaikh and Kylie MacLellan

LONDON (Reuters) - Industrial output plunged unexpectedly in August and at its sharpest monthly pace since January, according to official data on Tuesday, denting hopes for an economic rebound in the third quarter of this year.

The Office for National Statistics said manufacturing output fell 1.9 percent on the month, confounding analysts' expectations for a 0.3 percent rise. July's increase was revised down to 0.7 percent from 0.9 percent.

The wider measure of industrial output, which includes power generation and resource extraction, fell by 2.5 percent on the month, also the sharpest drop since January and against forecasts for an increase of 0.2 percent.

August's falls in output more than offset the gains recorded in the previous two months, and, although industry accounts for just 17 percent of the economy, lessened the chance that Britain has emerged from recession after more than a year in decline.

Analysts now reckon GDP will barely enter positive territory in Q3 and even then only if services output recovers strongly.

"August's dismal industrial production figures will dampen some of the recent optimism about the economy's apparent bounce-back," said Vicky Redwood of Capital Economics.

"Accordingly, a return to positive overall GDP growth in Q3 now looks less certain," she added.

The National Institute for Economic and Social Research said the economy probably did not grow at all in the third quarter of this year, after a modest expansion of 0.1 percent in the three months to August, an outturn it described as "disappointing."