Factory stagnation not enough to stop rate rise this week

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An unexpected stagnation in the output of Britain's factories in September triggered speculation that estimates of growth in the third quarter would be cut, reducing the need for further interest rate rises.

Official figures showed that manufacturing production was flat on the month, disappointing expectations in the City of a modest rise. It was the first month since April that the sector, which makes up just 15 per cent of the economy, has not expanded.

The wider production sector, which includes North Sea oil and the public utilities, rose just 0.2 per cent month-on-month, and by 0.5 per cent on the year.

It left the quarterly growth rate at just 0.1 per cent compared with the 0.7 per cent rise that the Office for National Statistics (ONS) pencilled in when it produced its "flash" estimate of third-quarter GDP growth.

Analysts said that on its own this would slice 0.04 per cent off GDP. "This raises the possibility that overall third-quarter GDP growth could be revised down," Howard Archer, chief UK economist at Global Insight, said.

However, the next estimate of economic growth is not published until later this month and analysts said yesterday's figure would not stop the Bank of England raising the base rate to 5.0 per cent on Thursday. But it added to the debate about whether this week's anticipated rise will mark the peak for interest rates in the current cycle.

John Butler, UK economist at HSBC, said: "The downside news is consistent with our view that a 5 per cent interest rate should prove the peak."

The ONS, which produced the figures, said a steep fall in the output of electrical goods such as mobile phones, set-top TV boxes and computers, offset healthy rises in pharmaceuticals.

The National Institute of Economic and Social Research struck a more upbeat note, saying the economy had maintained quarterly growth of 0.7 per cent into October.

Meanwhile, new car registrations rose 0.9 per cent in October compared with a year ago, the Society of Motor Manufacturers and Traders said.