Pressure grows to pump more cash into economy as output slumps

Bank of England policymakers will come under pressure today to pump more cash into the ailing economy after a sharp fall in industrial output stoked fears of a second recession.

The central bank restarted its programme of quantitative easing (QE) in October, raising its asset purchase target by £75 billion to £275bn. These purchases are due to be completed by February.

Most analysts reckon the BoE will wait until then before considering more stimulus, but a string of weak business surveys in recent weeks has heightened the chances of an earlier move.

Official data showed that UK industrial output had fallen at its fastest pace in six months in October. The Office for National Statistics (ONS) said output fell 0.7 per cent, more than double the decline forecast by analysts.

The grim data, which also revealed the first three-month decline in manufacturing output in two years, follows last week’s downbeat purchasing managers’ index for the sector.

The coalition government had been hoping that manufacturing exports would help drive a strong recovery, filling the gap left by public-sector austerity cuts and muted domestic demand.

Business leaders yesterday renewed their call for an immediate extension of the QE programme to “contain the downward pressures on the economy”, though analysts played down the likelihood of action at this month’s BoE meeting, which concludes at lunchtime today.

David Kern, chief economist at the British Chambers of Commerce, described the latest manufacturing figures as “disappointing” but “not entirely surprising given the global economic situation”. He continued: “Every effort must now be made to contain the downward pressures on the economy and sustain confidence.

“The government must act quickly to implement the credit-easing measures announced by the Chancellor. The recent increase in the QE programme was welcome, but we would like the monetary policy committee to announce an additional £50bn of asset purchases at its meeting today.”

The ONS said the decline in manufacturing output was driven by falls in the metals, repair and pharmaceutical industries.

Statisticians noted that the decline in the wider industrial output measure also reflected a sharp drop in energy production due to the warmest October weather in five years.

Samuel Tombs, UK economist at Capital Economics, said: “October’s official UK industrial production figures are even weaker than we or the consensus had expected and suggest that the risk that the overall economy re-enters recession in the fourth quarter remains high.”

Shehan Mohamed, an economist at the Centre for Economics and Business Research, added: “Further manufacturing job losses could occur as export markets suffer from an expected recession in parts of the eurozone. Furthermore, key inward investments in plants and machinery could be delayed.”