UK industrial output falls sharply

By Norma Cohen

Published: December 9 2008 10:27 | Last updated: December 9 2008 11:56

Fresh concerns about the speed of the downturn in the UK economy were raised on Tuesday after figures showed industrial output fell at its fastest rate for nearly six years.

Industrial output fell by 1.8 per cent in the three months to the end of October compared with the previous three months, with manufacturing registering a 1.4 per cent drop between September and October.

Howard Archer, economist at IHS Global Insight, said the data suggested that the contraction in gross domestic product could be particularly severe in the fourth quarter of 2008.

“Given the recent stream of bad news on the UK economy, it is hard to be shocked by a data release, but the October industrial producer data manage this feat,” Mr Archer said. “Even allowing for the fact that the industrial sector only accounts for 18 per cent of the total economy, this increases the likelihood that there will be an extremely sharp contraction in GDP in the fourth quarter.”

Mr Archer said that revisions to earlier industrial production data made it likely that the 0.5 per cent contraction already reported for third-quarter GDP would be revised upward to a 0.6 per cent drop in national income.

Separate figures from the Office for National Statistics showed the UK’s trade deficit widened in October. Recent interest rate cuts failed to boost exports, and the deficit in goods and services widened by £3.5bn in the most recent month’s data.

The trade deficit in goods with other European Union states widened in October to a provisionally estimated £37.8bn from £7.4bn in September. Total exports of goods fell by 3.5 per cent to £21.2bn and total imports of goods fell by a more modest 1 per cent to £38.9bn, providing further evidence that UK consumer spending is slowing.

The figures add to a recent run of poor data. The latest report from the British Retail Consortium showed a total drop in sales of 0.4 per cent in November compared with October, providing further evidence that the historic rate cuts from the Bank of England have yet to reach the high street.

The back-to-back fall marked the first time that sales had fallen in consecutive months since the group first began compiling its index in January 1994.

Separately, the Royal Institution of Chartered Surveyors said the average number of housing transactions hit a record low in November.

Estate agents sold just 10.6 properties each on average last month – the lowest in the series’ 30-year history – down from 10.9 in October, which agents largely attributed to the increasing caution with which lenders were dispensing mortgages.

The raft of weak data weighed on the pound, which has fallen 18 per cent against the currencies of Britain’s main trading partners so far this year.

The pound sank 1.1 per cent to an intraday low of $1.4738 against the dollar, heading towards last week’s 6½ year low of $1.4467.

Against the yen, the pound dropped 0.9 per cent to Y137.03, while losing 0.5 per cent against the euro at £0.8725.

Simon Denham, managing director of Capital Spreads, said: “Sterling is once again the whipping boy on the exchanges. The fact that [the pound] keeps slipping from ledge to ledge with no real attempts to step ‘up’ does not bode well for longer term stability. Virtually every chart you look at shows the pound in long-term decline.”

The weakness in the industrial output figures was widespread with not one manufacturing category recording a significant increase in the three-month period to the end of October.

The most significant falls were a 4.6 per cent drop in the transport equipment industries – a category which includes the UK’s hard-pressed autos sector – as well as a 3.4 per cent decline in the paper, printing and publishing sectors and a 2.6 per cent drop in basic metals and metal products.

In the mining and quarrying sector, output in the three months to October fell by 0.7 per cent and stood 6.6 per cent below the level of the same period in 2007. Between September and October, mining and quarrying output dropped by 7.3 per cent with falls in oil and gas production due to unscheduled maintenance work.

Among market sectors, output of consumer durable goods fell by 3.6 per cent in the three months through to the end of October and was 8.1 per cent below that in the same period of 2007.

Consumer non-durable goods production showed a more modest decline on 0.7 per cent for the three months through October and stood 1.7 below the levels of 2007 for the same three-month period.

Copyright The Financial Times Limited 2008