UK Industrial Production Falls in September

UK industrial production surprisingly dropped in September, according to official figures, but manufacturing output was unexpectedly stronger.

The figures confirmed that British industry overall dragged on otherwise robust economic growth in the third quarter. By contrast, consumers have shown no sign of curbing their spending after June's vote to leave the European Union.

UK industrial production declined 0.4% in September compared with expectations of a 0.1% monthly increase with output undermined by weakness in the mining sector. There was a three-month decline of 0.5% with a small annual gain of 0.3%.

Manufacturing production increased 0.6% for the month with a 0.2% advance on the year, which was marginally above market expectations, but the sector is struggling to make any headway.

On a yearly basis, industrial production was up 0.3%, short of the 0.8% expected and down from the previous month's 0.7%.

"Manufacturing was broadly flat across the third quarter while oil and gas were weak overall, with widespread summer maintenance shutdowns hampering production more than usual," said Office of National Stastistics senior statistician Kate Davies.

"There are no obvious signs so far of either the weak pound or post-referendum uncertainties affecting the output of UK factories, which continued broadly in line with recent trends," Kate Davies said.

Sterling's near 20 percent plunge following Britain's vote in June to leave the European Union has brought the currency to the ideal rate for the UK economy, according to a poll of economists taken in the past few days.

In the third quarter, production output decreased 0.5 percent from the previous quarter. The largest downward pressure came from manufacturing, which fell 0.9 percent, partially offset by a rise in mining and quarrying of 4.3 percent.

Economist Sam Tombs at Pantheon Macroeconomics said September’s drop means that production fell 0.5% quarter-on-quarter in Q3, slightly worse the 0.4% fall that underpinned the preliminary estimate of GDP, though would be insufficient to cause GDP growth to be revised down.

"In addition, industrial production probably bounced back in October; manufacturing surveys point to further solid gains and output in the energy supply likely mean-reverted. Nonetheless, the outlook for stagnation in households’ real incomes due to high inflation and lower capital expenditure by firms suggests that industry will struggle in 2017," Tombs said.

The Bank of England (BoE) left monetary policy unchanged at the November meeting that concluded on last Thursday, maintaining a more hawkish tone than what was anticipated by market participants. The board shifted from an easing bias to a neutral bias, saying that it "can respond in either direction".