December 7, 2016 / 9:39 AM / 3 years ago

Industrial output sinks as weak sterling no boon for factories

LONDON (Reuters) - Falls in sterling since the Brexit vote failed to boost Britain’s manufacturers in October as industrial output, also hit by a shutdown at the country’s largest oilfield, suffered its biggest monthly drop since 2012.

A man works on the production line at the Toyota factory in Derby, central England, March 7, 2011. REUTERS/Darren Staples/File Photo

Industrial production sank 1.3 percent, Office for National Statistics data showed on Wednesday - a steeper decline than any economist had forecast in a Reuters poll.

The last time the fall was bigger was in September 2012, when the Buzzard oilfield in the North Sea also underwent extensive maintenance.

Oil and gas output, which fell 10 percent, is likely to recover rapidly. Buzzard, which accounts for nearly a fifth of British offshore oil production, reopened on Oct. 28, though it will pump less than before.

Economists said the drop in factory output, while smaller, was more concerning and underscored how the upbeat tone in industry surveys since Britain voted to leave the European Union in June was not translating into official data.

“This report is likely to prompt a more cautious approach when it comes to interpreting some of the relatively sanguine post-referendum survey evidence,” RBC economist Sam Hill said.

Sterling, whose weakness makes British goods on average cheaper for foreign buyers, recorded its biggest slide in two months after the data, hitting a one-week low against the euro.

It has fallen 10 percent against the common currency EURGBP=D4 and 15 percent against the dollar GBP=D4 since the Brexit referendum. October's decline in industrial output contributed to a 1.1 percent year-on-year fall, the steepest since August 2013.

Manufacturing contracted by 0.9 percent on the month after a 0.6 percent rise in September, bucking economists’ forecasts for another gain. The decline was spread across a range of industries, the ONS said.

Overall, Britain’s economy has performed much better than almost all economists forecast since the Brexit vote.

Stronger exports have helped but most of the growth has been down to robust consumer spending, which many economists expect will slow as the weak pound pushes up inflation next year.

The Bank of England forecasts growth will slow to 1.4 percent next year from 2.2 percent in 2016, and that inflation will triple from its current rate of 0.9 percent.

editing by John Stonestreet

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