British industrial output suffered an unexpected fall in August as factories cut production, casting some doubt on the positive message about the economy from private sector surveys.
Industrial output fell by 1.1 percent on the month in August, the biggest drop since September last year. This was far weaker than the increase of 0.4 percent forecast by economists, and contrasts with upbeat surveys of firms in the manufacturing sector.
Ross Walker, a UK economist at Royal Bank of Scotland, described yesterday’s release as “shockingly bad” and said it was likely that recent reports had overstated the pace of the recovery.
“It does take some of the gloss off the UK. Some of the expectations were getting a bit ahead of reality,” he added.
The Markit/CIPS purchasing managers’ index for August showed the fastest increase in activity for two years.
And a quarterly poll by the British Chambers of Commerce showed factory sales rising at the fastest rate since the early 1990s.
The pound fell and British government bond yields hit a six-week low as investors scaled back some of their recent optimism over Britain’s economic outlook.
August’s fall in industrial output was driven by a steep decline in manufacturing output, which fell 1.2 percent on the month. The pharmaceutical, electronic and food and beverage sectors led the decline.
Output from Britain’s oil and gas industry, which also feeds into the broader industrial output measure, was weak too. Production dropped by 0.1 percent on the month and was 17 percent lower than a year earlier – the biggest drop since March.
The statistics office said there was no specific reason for the decline in manufacturing, but noted that output in August tended to be weak and that seasonal adjustment to offset this was complicated by the London Olympics in August last year.
The manufacturing sector had a stronger performance in the three months to August, with output up 1.2 percent – the biggest rise since October 2010.
Most economists remained confident that British third-quarter growth would beat the 0.7 percent expansion recorded in the three months to June.
“We view this release as data volatility and remain relatively relaxed about the outlook for industrial production and the UK recovery as a whole,” Philip Shaw at Investec said.
Separate data, released at the same time, showed Britain’s goods trade deficit narrowed less than expected in August. – David Milliken and Christine Murray London from Reuters