So Much for the predicted upturn in the U.K.

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   Sharp fall in industrial output, denting recovery hopes
   

British industrial output fell more than expected in September, data showed on Tuesday, raising fears that the economy will contract in the fourth quarter.








Manufacturing output rose by 0.1pc in September on the month after a downwardly revised drop of 1.2pc in August.






By Rachel Cooper, and agencies

10:15AM GMT 06 Nov 2012


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Manufacturing output rose by 0.1pc in September on the month after a downwardly revised drop of 1.2pc in August, the Office for National Statistics said. Economists had predicted a monthly 0.3pc rise.


The wider reading of industrial output, which includes energy production and mining, fell by 1.7pc in September after a 0.5pc drop in August.


Excluding a decline in June that was affected by an extra public holiday, the monthly reading was the lowest since August 2009 and below forecasts for a 0.6pc drop on the month.


Samuel Tombs at Capital Economics said the industrial production figures suggest that "the economic recovery is quickly losing momentum again".


Although the figures were not weak enough on their own to prompt a downward revision to the preliminary estimate that the economy grew 1pc in the third quarter, Mr Tombs believed that weal data points to further falls in output ahead.



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"So, having helped the economy out of recession in the third quarter, it seems increasingly likely that industry will be one of the key sectors prompting a renewed fall in gross domestic product in the fourth quarter," he added.

Alan Clarke at Scotiabank pointed out that the 1.7pc drop reflects the effects of maintenance in the North Sea prompting a 20pc slide in oil and gas extraction. Therefore, he cautioned against reading too much into the figures.

"Overall it's a gloomy report, it's not the bloodbath that -1.7pc suggests but it's gloomy nonetheless," he added.

The Bank of England will decide on Thursday whether to inject further cash into the economy to prop up the recovery after Britain emerged from recession in the third quarter.

The central bank has already bought government bonds worth £375bn in its quantitative easing programme.

Despite Britain's return to growth, manufacturers face tough times ahead as economic headwinds hold back demand at home and abroad.

Government spending cuts, tax rises and low wage growth have sapped consumer confidence, while the eurozone debt crisis has cast a dark cloud over the business outlook.

Worries about the recovery had already grown on Monday after a survey showed business in Britain's dominant services sector expanded at the slowest pace in almost two years in October and optimism about the outlook dimmed.

Industrial production was 0.9pc higher in the three months that ended in September when compared to the previous three-month period. It was unchanged in the three months to August.

Mining and quarrying recorded its biggest monthly drop since February 1974, while oil and gas extraction posted the largest fall since records began in 1997.

Business surveys have indicated a weak start to the final quarter of the year and economists have pointed out that one-off factors contributed to Britain's return to growth in the third quarter.