Triple-dip recession fears over industrial output fall

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INDUSTRIAL production unexpectedly fell in October after factory output posted its biggest drop since June, reinforcing fears that the economy will shrink again at the end of this year.

It combined with weak trade data earlier in the week to cast doubt on lingering Government hopes of an export-led recovery.

Britain has suffered two recessions in the past four years, the last one ending barely three months ago, at least partly thanks to a boost from the Olympics.

Chancellor George Osborne warned on Wednesday of far slower economic growth ahead than previously thought, and official forecasts signalled another contraction in the final quarter of this year.

In yesterday’s figures, manufacturing output dropped 1.3 per cent in October after stagnating in September and was 2.1 per cent lower than a year earlier, the Office for National Statistics said.

The broader measure of industrial output, which accounts for over 15 per cent of Britain’s gross domestic product, also fell both on the month and the year in October, after oil and gas extraction posted the sharpest yearly fall since records began in 1998.

“Very disappointing, triple dip here we come,” said Alan Clarke, economist at Scotiabank. “Manufacturing was diabolical. Sadly, I think there is not a lot to suggest that it is temporary. Survey data has been fairly downbeat.”

Industrial output, which includes energy production and mining as well as manufacturing, fell 0.8 per cent on the month, confounding forecasts for a rise, after a 2.1 per cent decline in September.

Oil and gas extraction plunged by well over a quarter on the year, partly due to maintenance which led to a temporary shutdown of the largest oil field in the North Sea. Greater than usual maintenance as well as a long-term decline in Britain’s North Sea oil reserves have sapped output in the past 12 months.

Both the monthly and annual manufacturing declines were the steepest since June, when extra public holidays dented production, and were far worse than predicted by economists.

The production of food, beverages and tobacco was particularly low, with demand for beer down, the ONS said.

Tom Vosa, Yorkshire Bank economist, said this latest data suggests the economy is likely to contract in the fourth quarter. “The fall in alcohol production probably reflects some Olympic ‘hangover’ with producers finding falling demand as consumption patterns returned to normality. The fact that the decline in production was across the board means that we cannot simply blame this on a specific story.

“Excluding coke and refined petroleum production would still see manufacturing falling by 0.7 per cent on the month.”

Earlier this week, the latest Markit/CIPS purchasing managers’ index (PMI) showed that manufacturing output shrank for the seventh month in a row last month, although the pace of decline was slower than expected.

It produced a headline reading of 49.1 for November, an improvement on 47.3 in the previous month but below the 50 mark that separates expansion from contraction.

Mr Vosa added: “The 49.1 reading... points to a further decline in November before output stabilises so manufacturing is likely to weigh on growth in the fourth quarter ensuring that GDP growth is negative.

“Although Monetary Policy Committee members continue to question the efficacy of quantitative easing, we suspect that this fall in output is a reminder to markets that they may feel that they have little option but to expand it later next year if the economic recovery continues to show little traction.”

In response to the November PMI manufacturing data, Andrew Tuscher, regional director at manufacturers’ organisation EEF, said earlier this week that the Yorkshire region is “pretty reflective” of the national picture.

If businesses are solely relying on Europe, he said it is “a mixed story” dependant on sector, but added: “In the main, not very positive.

“We are seeing however very, very good figures for those that are exporting into Brazil and Latin America.”