UK industrial production unexpectedly falls in August

Industrial production in the UK unexpectedly fell in August by the most in almost a year, casting doubt on the strength of the third-quarter recovery.

Industrial output dropped 1.1 per cent from July, when it gained 0.1 per cent, the Office for National Statistics said today in London. Factories cut output by 1.2 per cent, with pharmaceuticals contributing most to the decline.

While the International Monetary Fund yesterday raised its forecasts for the UK by more than any other Group of Seven economy, today's figures suggest the industrial sector is lagging behind.

Bank of England policy makers are expected to maintain policy to cement the recovery when they conclude their two-day meeting today.

Within manufacturing, there were declines in pharmaceuticals, computer electronics and food and beverage output, the ONS said. From a year earlier, factory output fell 0.2 per cent.

On the month, there were also declines in the output of utilities including water, oil and gas and mining and quarrying, the ONS said.

Overall industrial production grew 1.1 per cent in the three months through August.

IMF forecast

In its World Economic Outlook published yesterday, the IMF predicted UK economic growth of 1.4 per cent in 2013 and 1.9 per cent next year, about half a percentage point more in both years than previously seen.

It expects the euro region to shrink 0.4 per cent in 2013, lagging behind the US for the fifth year.

In a separate report today, the ONS said the goods-trade deficit narrowed to £9.63 billion (€11.38 billion) from £9.94 billon. Exports rose 1.1 per cent and imports declined 0.1 per cent.

The deficit with European Union nations widened, while the gap with non-EU states narrowed.

Between June and August, the deficit in goods and services widened to £8.39 billion from £6.42 billion, suggesting net trade will again struggle to contribute to growth in the third quarter.

While gross domestic product grew 0.7 per cent in the second quarter, there was no contribution from net trade and business investment acted as a drag on the economy.

The Bank of England will leave its key interest rate at a record-low 0.5 per cent this week and keep its bond-purchase plan on hold, according to two surveys of economists.

The central bank, which will announce the decisions at noon tomorrow, has said it wilk keep the benchmark rate unchanged until unemployment, currently at 7.7 per cent, falls below 7 per cent.

Bloomberg