Factories show UK economy on verge of shrinking again

LONDON (Reuters) - British 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 Friday's figures, manufacturing output dropped 1.3 percent in October after stagnating in September and was 2.1 percent lower than a year earlier, the Office for National Statistics said.

The broader measure of industrial output, which accounts for over 15 percent 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 percent on the month, confounding forecasts for a rise, after a 2.1 percent 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.

David Tinsley, economist at BNP Paribas, attributed some of the weakness to a drop-off in demand for food and beer after it was boosted by the London Olympics and Paralympics which ended in September.

POOR OUTLOOK

A darker economic outlook for the coming months and years has brought Britain closer to an embarrassing loss of its prized triple-A credit rating, after ratings agency Fitch warned that Osborne's admission he will miss a key debt-cutting goal undermined his fiscal credibility.

Echoing that, Chris Williamson, economist at survey compiler Markit, said in a comment on the industrial production figures: "The concern is that any new (economic) downturn will ... put further pressure on the UK's triple-A credit rating."

Economic uncertainty, below-inflation wage growth and Osborne's austerity measures have kept a lid on demand for manufactured goods at home.

Meanwhile, global economic headwinds have reduced the appetite for Britain's wares abroad -- particularly in the euro zone -- and the value of its goods exports fell in October to the lowest level since June.

(Additional reporting by Peter Griffiths. Editing by Jeremy Gaunt.)

Source: http://news.yahoo.com/october-manufacturing-output-weakest-since-june-095151392--business.html

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