UK factory output unexpectedly drops while exports slump

[LONDON] UK industrial production unexpectedly declined in July and exports of goods fell the most in nine years, adding to signs of slowing momentum in economic growth.

Total production fell 0.4 per cent from June, the Office for National Statistics said in London on Wednesday. An increase of 0.1 per cent was expected by economists in a Bloomberg survey. Sales of British goods abroad fell 9.2 per cent on the month, contributing to a decline factory output.

The figures come the day before the Bank of England releases its latest interest-rate decision. The latest data may reinforce expectations that a majority of policy makers will vote to keep borrowing costs at a record low.

Manufacturing dropped 0.8 per cent, against a forecast for a 0.2 per cent increase. Oil and gas production fell 0.4 per cent. Factory output dropped 0.5 per cent from a year earlier, while overall production increased 0.8 per cent.

The drop in industrial output from June was due to summer shutdowns at auto factories beginning earlier than usual, along with a drop in weapons manufacturing.

The goods trade deficit widened to 11.1 billion pounds, more than economists forecast and the most in a year, led by a drop in exports of chemicals and manufactured goods. Imports increased 0.8 per cent.

The deficit with countries located outside the European Union widened to 3.5 billion pounds, as exports plunged 12.6 per cent on the back of falling shipments to the US, Switzerland and China.

The total trade deficit widened to 3.4 billion pounds. The surplus in services increased to 7.7 billion pounds.

In the second quarter, the total deficit narrowed more than previously estimated to 3.4 billion pounds. That raises the possibility that net trade contributed more to economic growth in the period than the 1 percentage point reported last month. The ONS cautioned the overall picture could change as it goes through its annual Blue Book revisions.

A survey of purchasing managers published by Markit Economics last week showed manufacturing growth cooled in August as export orders fell. Producers blamed the decline in foreign demand on a strong pound, weakness in the euro area and the economic slowdown in China.

BLOOMBERG