Single month figures should always be treated cautiously but this - being unexpected - is worrying nevertheless.
Christina
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REUTERS 6.10.09
Industrial output plunges in August
LONDON (Reuters) - British industrial output in August fell unexpectedly and at its sharpest monthly pace since January, official data showed on Tuesday, dampening expectations for a strong rebound in growth in the third quarter of this year.
The Office for National Statistics said manufacturing output fell 1.9 percent on the month -- the steepest fall since January -- and compared with July's downwardly revised rise of 0.7 percent. That confounded analysts' expectations for an increase of 0.3 percent.
The wider measure of industrial output, which includes energy production, fell by 2.5 percent on the month, also the sharpest drop since January and against forecasts for an increase of 0.2 percent.
August's falls in output more than offset the gains recorded in the previous two months, highlighting the fragile state of the British economy.
"August's dismal industrial production figures will dampen some of the recent optimism about the economy's apparent bounce-back," said Vicky Redwood of Capital Economics.
"Accordingly, a return to positive overall GDP growth in Q3 now looks less certain," she added.
The pound fell to a 1-week low against the euro and gilt futures hit a contract high as investors scaled back their expectations for a quick recovery and bet that monetary policy would have to remain loose for some time yet. [This is the most scary bit! If gilts are reacting sharply this means that our whole economy - dependent on borrowing - has come under closer scrutiny -cs]
"This is a bit of a reality check on the status of the UK economy," said Philip Shaw, economist at Investec.
The bank has slashed borrowing costs to a record low of 0.5 percent and embarked on a 175 billion pound programme to pump cash into the economy. Policymakers are expected to maintain that stance at their monthly meeting this week and Tuesday's data are likely to reinforce their concerns about the strength of a recovery.
Still, other data on Tuesday painted a more upbeat picture of the economy.
The Society of Motor Manufacturers and Traders said car sales jumped 11.4 percent on the year in September, partly due to a government incentive scheme. And mortgage lender Halifax said house prices rose 1.6 percent last month.
Meanwhile, the ONS said all 13 categories of manufacturing output fell in August, with significantly large declines in paper and publishing, electrical and optical equipment and food and drink.
Motor vehicle production, which had given a boost to manufacturing output in July, fell by 2.6 percent in August, the data showed.
The ONS also said there was anecdotal evidence that factories had shut down for the summer break in August and that part of July's strong increase in output had been due to firms ramping up production before the recess.
And oil and gas output was affected by planned closures of plants due to annual maintenance work. Oil and gas output fell by 7.7 percent on the month -- the steepest decline since October 2008.
That led some analysts to conclude that there might be a rebound in output in September.
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