Statisticians unmoved as output drops

The Office for National Statistics said industrial output fell 0.5 per cent in June, partially reversing May's 0.7 percent rise and

confounding forecasts for a 0.2 per cent increase. Sterling fell half a cent against the dollar in response.

The ONS said the main reason for the fall was a six per cent per cent drop in oil and gas output, its biggest monthly fall since last August.

The decline in oil and gas extraction was due to maintenance work being carried out in June, rather than in August when work on oil fields is normally done.

The office said Friday's data would not lead to any revision of the second quarter's gross domestic product figures, which showed growth of 1.1 per cent for the economy as a whole.

The one per cent quarterly rate of growth reported by the ONS was the same as the estimate used in last month's preliminary gross domestic product data but that provided little comfort to investors who are worried that Britain will find it hard to sustain an economic recovery amid heavy Government spending cuts, weak demand from Europe and tight credit.

The pound fell as markets speculated that the Bank of England would be in no hurry to raise interest rates after leaving them at their record low 0.5 percent on Thursday.

Howard Archer, economist at IHS Global Insight, said: "The suspicion going forward is that manufacturing will lose momentum.

"There are hints that the second quarter may have been the peak of manufacturing activity. And certainly the inventory adjustment will probably soon come to an end."

Manufacturing output also rose less than expected in June, by 0.3 per cent, the same as in May. The slowdown in July's Purchasing Managers surveys this week suggested a further easing.

Alan Clarke, economist at BNP Paribas, said: "Survey and gross domestic product data implied more than double this pace, so that's

disappointing." Nonetheless, eight of the 13 manufacturing sub-sectors recorded increases, with the main rises being in the food, drink and tobacco; chemical and man-made fibres, and metal and metal products sectors.

ONS data also showed annual factory gate inflation slowed less than expected in July – to five per cent from 5.1 percent – after a rise in food prices outweighed a drop in petrol costs.

Food prices may have further to rise given Russia's ban on wheat

exports, which is pushing up wheat prices.

Input price inflation picked up much less than expected, at a rate of 10.8 per cent from 10.7 per cent in June. Analysts expected producer output price inflation of 4.9 per cent and input price inflation of 11.4 per cent.