Weak UK factory output suggests poor start to Q3

| October 11, 2011

The Office for National Statistics (ONS) has today revealed UK factory output fell 0.3% in August on a monthly basis.

The reading was worse than economists had expected and confirm weak prospects for the economy after the figures suggest a poor start to the third quarter.

On an annual basis, meanwhile, factory output was 1.5% higher – representing the weakest annual growth since February 2010, the ONS said.

Overall industrial output, which includes mining and oil and gas, rose 0.2% on the month.

The fall in manufacturing represented the third consecutive monthly decline and the biggest since April.

The ONS said out of the 13 categories, seven reported a decline in August, led by wood and paper products, basic metals and metal products.

The manufacturing sector had been one of the few bright spots in the economy but today’s figures suggest the sector is stalling.

However, last week, the Chartered Institute of Purchasing and Supply (CIPS)/Markit manufacturing purchasing managers’ index (PMI) revealed UK manufacturing activity bounced back last month.

The closely-watched CIPS/Markit manufacturing PMI rose to 51.1 in September from August’s reading of 49.4.

Activity had contracted for the last three months but the recent survey means the index has moved back above the crucial 50 mark – which separates growth from expansion.

Last week, the Bank of England announced it would restart its quantitative easing (QE) scheme – a move which was widely expected after the Office for National Statistics (ONS) recently revealed the UK economy grew by 0.1% in the second quarter – slightly less than a previous estimate of 0.2%.

A recent slew of weak economic data had led to speculation that the central bank would embark on its “QE2” programme to boost the economy.

The Bank said it will pump a further £75 billion via its QE scheme after injecting £200 billion into the economy in November 2009.

QE, also known as printing money, is a process used for buying Government bonds or other financial assets.

However, the British Chambers of Commerce said today that the fresh round of QE may not be enough to prevent the economy from slipping back into recession and “more radical measures” are needed.

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