Factories output suffers surprise fall

Britain's factories suffered a second successive monthly fall in output in July for the first time in almost two years, according to official figures released yesterday.

Britain's factories suffered a second successive monthly fall in output in July for the first time in almost two years, according to official figures released yesterday.

The unexpected drop of 0.2 per cent makes it almost certain the Bank of England would leave interest rates on hold this week, economists said.

In the City, where analysts had forecast a rise of some 0.5 per cent, the pound hit a sixth-month low against the euro on fears the economy was embarked on a major slowdown.

The figure was the latest in a run of weak data from the housing market, consumer spending and borrowing and the corporate sector. Simon Rubinsohn, at Gerrard stockbrokers, said: "The much talked-of 'soft spot' has spread to the industrial sector. This means the Bank will certainly do nothing at this week's policy-making meeting."

Eight of the 13 manufacturing sectors suffered a fall, led by pharmaceuticals - the largest industry - which dropped by 8.3 per cent after a run of strong output. The other notable fall was an 11 per cent drop in beer output, which analysts said was probably a hangover from June's Euro 2004 football championship and a result of poor weather in July.

Some of the gloom was offset by large upward revisions to output in April, May and June. On their own they would be enough to push overall GDP growth for the second quarter from 0.9 per cent to a four-year high of 1.0 per cent.

Geoffrey Dicks, at Royal Bank of Scotland, said: "It is difficult to get too worked up about official data which report falling output and at the same time makes upward revisions to each of the previous five months."

He said the fall appeared to contradict last month'ssurvey of managers that showed factory activity hit a decade-high in July. There was also doubt over the scale of the slowdown on the high street after a survey said the number of visitors to shopping centres last month hit a five-year high for an August. But fresh signals of weakening house prices came from Woolwich bank, which said consumers' confidence in the market had fallen for the third month a row.

The National Institute for Economic and Social Research estimated quarterly GDP growth slowed to 0.7 per cent last month from July's 0.8 per cent but said another rate rise was needed to keep inflation under control.