Shock fall in output dents recovery

Published on Tuesday 6 October 2009 21:32

SERIOUS doubts have been cast on the UK's chances of pulling itself out of recession during the third quarter after a shock fall in manufacturing output.

It slid by 1.9 per cent during August – the worst performance since January, taking production to its lowest level since 1992 – after two months of growth. Analysts had predicted a 0.4 per cent rise, following renewed expansion in the services sector.

Weaker industrial production prompted the National Institute of Economic and Social Research to estimate the UK's gross domestic product (GDP) had probably stalled in the third quarter, an outturn it described as "disappointing".

Experts said a return to growth for the overall economy between July and September was now "less certain".

Vicky Redwood, at Capital Economics, said: "August's dismal industrial production figures will dampen some of the recent optimism about the econ-omy's apparent bounce-back.

"A return to positive overall GDP growth in the third quarter now looks less certain."

The markets, however, brushed off the weak output figures to extend Monday's gains, as commentators predicted the surprise fall in output would add weight to the case for the Bank of England holding interest rates at record lows when it announces its decision tomorrow.

After yesterday's news from the Office for National Statistics (ONS), the British Chambers of Commerce renewed calls for the Bank to extend its quantitative easing scheme to 200 billion, boosting the supply of money.

Peter Hughes, chief executive of trade body Engineering Scotland, said: "

It is still far too soon to be talking about green shoots of recovery and the ONS figures are effectively concluding – as we did in our September quarterly review – that there are signs the decline in manufacturing output could be bottoming out."

David Lonsdale, CBI Scotland's assistant director, said:

"Now more than ever, we need a supportive policy framework for manufacturers, particularly if they are to capitalise on any pick-up in overseas markets. What we don't want to see is reduced levels of support for the manufacturing advisory service and for exporters in the looming cuts to the budgets of Scotland's enterprise agencies."

Yesterday's figures came despite the pound's weakness, which had been expected to boost manufactured exports.

The ONS's less volatile three-monthly figures showed no change in manufacturing output in the three months to August compared with the previous quarter.

The disappointing news came a day after data on the services sector – which accounts for 70 per cent of the UK economy and takes in banks, shops and hotels – showed the fastest rate of growth for two years.

Meanwhile, figures from the Society of Motor Manufacturers and Traders revealed sales of new cars in the UK had increased by more than 11 per cent last month, helping the beleaguered vehicle industry.