Fall in UK industrial output could spark GDP revision
By Alex Fak
Published: November 5 2004 10:53 | Last updated: November 5 2004 11:26
news.ft.com
Britain’s industrial production and manufacturing output fell further than expected in the third quarter, official data likely to trigger a downward revision of the country’s GDP figures.
Overall industrial production fell for the fourth month in a row in September, by 0.4 per cent, and has dropped by 1.4 per cent in three months to September. Manufacturing output rose by just 0.1 per cent in September, translating to a slump of 1.0 per cent in the third quarter.
Production was even weaker than the Office for National Statistics had expected in estimating third quarter GDP: statisticians were betting on a fall of 1.1 per cent.
“This is [a] surprisingly negative number on the industrial side that could lower what was already a weak GDP estimate,” said John Butler of HSBC.
The September fall in industrial output marked “the longest period of consecutive monthly declines since the first half of 2001, during the height of the global industrial recession,” Mr Butler said.
The lower than expected production figure might dent estimates of economic growth in the third quarter by 0.05 per cent, said Andrew Walton, ONS statistician. The current estimate is 0.4 per cent, much lower than in previous quarters. The final GDP figure for the third quarter is due out on Nov. 26.
Malcolm Barr, UK economist at JPMorgan Chase Bank, said the drop in output could be enough to pull GDP growth down to 0.3 per cent in the third quarter.
Industrial output accounts for 21.8 per cent of the economy, according to Mr Walton.
Much of the decline in output was due to a 5.5 per cent drop in oil and gas extraction during the third quarter, as traditional maintenance work on the rigs was put off until September.
Lower extraction figures, however, may be more than just a temporary blip. UK North Sea oil reserves are due to be depleted within the next decade, said Mr Butler.
This “implies that from now until then oil production is on a one-way downward trend,” a potential drag on production, net trade, GDP, government tax revenues and the pound.
Economists said the latest findings also confirmed the continued underperformance of British manufacturers, though official data might be overstating the slump.
The ONS figures were especially disappointing because industry surveys have lately predicted expansion in manufacturing. Economists said that consistent contradiction between official and survey data is worrying.
No manufacturing sector reported any significant gains in the third quarter, though electrical and optical equipment makers saw growth of 1.2 per cent. However, several sectors - including textiles, leather and clothing; paper and publishing; rubber and plastics and wood products - experienced falls of 2 per cent or more.
“It is undeniable that manufacturing’s recovery has faltered markedly since mid-year amid higher interest rates, very strong oil prices and a softening in global growth,” as well as the strength of the pound earlier this year, which hurt the competitiveness of domestic producers and exporters, said Howard Archer, chief UK economist at Global Insight. |
