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Threat of triple-dip recession fails to unsettle industry’s optimists

The fall in output has failed to dampen the spirits of business leaders. Picture: Getty.

The fall in output has failed to dampen the spirits of business leaders. Picture: Getty.

  • by SCOTT REID
 

BRITAIN’S manufacturing sector has the potential to recover, business leaders yesterday insisted, despite a shock fall in output raising the spectre of a “triple-dip” recession.

Official figures revealed that output had fallen in October at the fastest pace since June, reinforcing fears that the wider economy is facing a renewed slump this quarter.

Britain has endured two recessions in the past four years, only exiting the last one between July and September.

However, Chancellor George Osborne warned in this week’s Autumn Statement of far slower economic growth ahead than thought, while official forecasts pointed to another contraction at the end of 2012.

Yesterday’s data from the Office for National Statistics (ONS) showed factory output fell 1.3 per cent in October, far worse than the 0.2 per cent dip pencilled in by analysts.

The wider measure of industrial production also slipped back, reflecting a record fall in oil extraction although this was partly due to maintenance on North Sea rigs.

David Kern, chief economist at the British Chambers of Commerce, which represents thousands of businesses, described the figures as “bleak” and said they increased the risk that the economy would decline in the fourth quarter.

However, he remained upbeat, arguing that many manufacturing firms had been able to maintain their skills bases during the downturn.

“There is no justification for pessimism,” said Kern. “Manufacturing is still a significant sector of our economy and is still benefiting from a competitive
exchange rate, not withstanding sterling’s rise over the past year.

“Weak growth in world trade will limit the scope for significant rises in manufacturing exports, but the sector is well-managed, and has the potential to recover.”

He said that while continuing to reduce the budget deficit, the UK government “must provide firms with the confidence to invest and grow”.

Both the monthly and annual manufacturing declines were the steepest since June, when extra public holidays dented production. The production of food, beverages and tobacco was particularly weak, with demand for beer down, the ONS noted.

Scotiabank economist Alan Clarke said: “Manufacturing was diabolical. Sadly, I think there is not a lot to suggest that it is temporary. Survey data has been fairly downbeat.”

Howard Archer, chief UK economist at IHS Global Insight, the forecasting group, added: “It is only too apparent that manufacturers are facing a tough environment. Domestic demand for manufactured goods is handicapped by current muted investment intentions and tightening public spending.”

Separate ONS figures yesterday showed that construction order volumes rose by 5.4 per cent over the third quarter, though Archer warned that the data “masks a still very weak-looking picture” for the sector.

l Britons expect a higher rate of inflation over the coming year than they did three months ago.

The Bank of England’s latest inflation attitudes survey showed that average expectations for the next 12 months rose to 3.5 per cent from the two-and-a-half-year low of 3.2 per cent in August.

 

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