October 9, 2013 / 8:48 AM / 6 years ago

Sharp fall in industrial output breaks run of strong UK data

LONDON (Reuters) - British industrial output suffered an unexpected fall in August as factories cut production, casting some doubt on the positive message about the economy from private-sector surveys.

Workers pack bricks at the Wienerberger Brick Factory in Dosthill, central England August 8, 2013. REUTERS/Darren Staples

British industrial output fell by 1.1 percent on the month in August, the biggest drop since September 2012. This was far weaker than the rise of 0.4 percent forecast by economists, and contrasts with upbeat surveys of firms in the manufacturing sector.

Ross Walker, UK economist at RBS, described Wednesday’s release as “shockingly bad” and said it was likely recent reports had overstated the pace of the recovery.

“It does take some of the gloss off the UK. Some of the expectations were getting a bit ahead of reality,” he added.

August’s Markit/CIPS purchasing managers’ index had showed the fastest increase in activity for two years, and a quarterly poll by the British Chambers of Commerce showed factories’ sales rising at the fastest rate since the early 1990s.

Sterling fell and the British government bond yields hit a six-week low as investors scaled back some of their recent optimism over Britain’s economic outlook.

August’s fall in industrial output was driven by a steep decline in manufacturing output, which fell 1.2 percent on the month. Firms in the pharmaceuticals, electronics and food and beverages sectors led the decline.

Output from Britain’s oil and gas industry, which also feeds into the broader industrial output measure, was weak too. Production dropped by 0.1 percent on the month and is 17.0 percent lower than a year earlier, the biggest drop since March.

The statistics office said there was no specific reason for the decline in manufacturing, but noted that output in August tended to be weak and that seasonal adjustment to offset this was complicated by the London Olympics in August last year.

The manufacturing sector had a stronger performance in the three months to August however, with output up 1.2 percent, the biggest rise since October 2010.

Most economists remained confident that British third-quarter GDP growth would beat the 0.7 percent expansion recorded in the three months to June.

“We view this release as data volatility and remain relatively relaxed about the outlook for industrial production and the UK recovery as a whole,” said Philip Shaw at Investec.

Industrial output makes up around 15 percent of Britain’s economy.

Separate data, released at the same time, showed Britain’s goods trade deficit narrowed less than expected in August

while a survey from the Bank of England showed most banks expected to a modest increase in lending to businesses in the fourth quarter.

Additional reporting by Michael Holden; Editing by Toby Chopra

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