August 6, 2007 / 8:37 AM / 13 years ago

Factory output up for 4th month running

LONDON (Reuters) - Factory output rose for a fourth consecutive month in June as strong demand helped manufacturers shrug off higher interest rates, rising oil prices and the strength of the pound.

Undated file photo of industrial plant in Scunthorpe. REUTERS/Ian Hodgson

June’s rise marked the longest unbroken run of increases in eight years and reflects continued strength in production of capital goods — those bought by other firms for investment purposes.

“British industry seems to have raised its game: There’s some underlying improvement going on here,” said Ross Walker at Royal Bank of Scotland.

The Office for National Statistics said manufacturing output rose by 0.2 percent in June, taking the annual gain to 0.9 percent. Both readings were in line with analysts’ forecasts and there was little market reaction.

“The Bank of England will be concerned that recent sustained healthy production will increase pressure on capacity and also boost manufacturers’ confidence in their pricing power,” said Howard Archer at Global Insight.

The Bank of England left interest rates at 5.75 percent last week but markets are pricing in one further rise before the end of the year.


The broader measure of industrial output — which includes energy output — rose 0.1 percent in June, also in line with analysts’ forecasts.

The underlying trend continued to paint a robust picture with the three month rate climbing 0.6 percent, its biggest increase in more than a year.

The rise came despite a sharp fall in oil and gas extraction in June as several smaller oil fields started maintenance work early.

Nevertheless, many analysts questioned whether the recovery could be maintained given recent rises in interest rates, the pound’s strength and oil prices once again near record highs.

Recent survey evidence for manufacturing has been mixed.

The Chartered Institute of Purchasing and Supply/NTC purchasing managers’ index rose to 55.7 last month from an upwardly revised 54.7 in June — its fastest pace in three years.

But the Confederation of British Industry reported that British factory orders unexpectedly fell in July at their sharpest rate since the start of the year.

“There’s a clear divergence beyond June in that we’ve seen a big fall in the CBI measure and a big rise in the PMI, sending confusing signals to the Monetary Policy Committee,” said David Page, economist at Investec.

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