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UK Industrial Production Falls In October

By Arthur Greene December 7, 2016
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A surprise 1.3% drop in production over the month followed a 0.4% decrease in September, according to the Office for National Statistics, and was the biggest monthly fall in four years and is far worse than the 0.2% rise forecast by economists. Economists had forecast a 0.2% rise for October.

The UK economy grew by 0.5 per cent in the third quarter and recent surveys have suggested a similar pace of growth continued into the fourth quarter. Wednesday’s figures from the ONS provide the first hard data on economic output in the fourth quarter.

The decline encompassed most sectors, the report added, indicating that the pharmaceutical sector recorded the biggest decline as output fell 3.6%.

On a year-on-year basis, production fell 0.4% in October, compared with the 0.2% increase recorded in the previous month, and short of analysts' expectations for a 0.7% increase.

The largest downward contribution came again from pharmaceuticals, which fell by 9.4%, although that was partly offset by a 10.4% increase from other manufacturing sectors.

The fall in industrial production was partly caused by one-off factors, in particular the temporary shutdown for maintenance of the Buzzard oilfield in the North Sea. But there was also a general fall in output, with three of the four main industrial sectors producing less in October this year than the same month a year ago.

On an annual basis, meanwhile, industrial production fell 1.1% from the corresponding period in the previous year, compared with a 0.3% gain in September and forecast for a 0.5% increase. The mining and quarrying sector was again the largest driver of the decline, as output fell by 8.7%, mainly due to maintenance in the oil and gas industry.

"With much of the latest survey evidence being decent and retail sales surging in October, we had believed that there was a good chance that UK GDP growth in the fourth quarter could match the resilient 0.5% quarter-on-quarter achieved in the third quarter," said Howard Archer, chief UK and European economist at IHS Global Insight.

"October saw a sharp fall in UK oil output, largely down to the total shutdown of the major Buzzard oil field," said ONS senior statistician Katie Davies.

"Small falls in output across a range of sectors also contributed to a drop in overall manufacturing," she added.

"The UK manufacturing data came much weaker than expectations and this presents a major threat for the economy," said Naeem Aslam, chief market analyst at Think Markets UK.

"So far investors have been of the mind frame that the country is overcoming its major economic headwinds but today's number clearly shows how much off beat they are with respect to reality."

Sterling weakened significantly with GBP/USD dipping to test support below 1.2600, while EUR/GBP consolidated the break above 0.8500.

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By Arthur Greene December 7, 2016

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