November 5, 2007 / 10:05 AM / in 13 years

Factory output falls in September

LONDON (Reuters) - British factory output unexpectedly fell in September, recording its first annual decrease in a year and a half, official data showed on Monday.

The Office for National Statistics said manufacturing output fell 0.6 percent on the month, compared with expectations of an unchanged reading, and the largest monthly fall since February.

On the year factory output was down 0.1 percent, against forecasts of a reading of 0.6 percent growth, and this was the first annual fall since February 2006.

Sterling fell against dollar and interest rate futures rose after the data which came alongside a weaker than expected services sector survey, indicating that the economy is softening in the wake of higher interest rates and the credit crunch.

Most economists have said they expect the Bank of England to hold interest rates at 5.75 percent on Thursday but signs of weakening across the whole economy have raised the chances of a 25 basis point cut. “A no change decision is not a done deal and we see a significant chance of a cut,” said Philip Shaw, chief economist at Investec.

The broader measure of industrial production activity fell 0.4 percent on the month and 0.2 percent on the year — also well below expectations.

The ONS said the figures were likely to lead to a downward revision of 0.04 percentage points to third quarter GDP growth. The first estimate showed 0.8 percent quarterly growth.

The economy grew at its fastest annual rate in more than three years in the third quarter, according to that initial estimate.

The ONS said the electrical and opticals sector contributed most to industrial weakness in September.

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