Industrial output stalls, leaving growth weakest since last year

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The Independent Online

A slump in British industrial output in the third quarter led to the weakest economic growth since early last year.

A slump in British industrial output in the third quarter led to the weakest economic growth since early last year.

Figures from the Office for National Statistics show that GDP rose by just 0.4 per cent in the three months to September, well below the 0.9 per cent gain of the second quarter. Analysts had predicted a 0.5 per cent gain. The annual growth rate fell to 3 per cent from 3.6 per cent in the second quarter.

The figures show the weakest quarterly growth since the first quarter of last year when the threat of war in Iraq shook confidence among consumers and businesses. They also show that the economy was growing at well below its long-term trend rate of 0.7 per cent. The main drag on growth came from the industrial sector, which makes up slightly less than one-fifth of the economy. Output plummeted by 1.1 per cent, the largest quarterly fall since the end of 2001. Growth in service industries held up at 0.8 per cent, little changed from the 0.9 per cent rise of the second quarter.

In its last quarterly Inflation Report, in August, the Bank of England predicted growth of about 0.9 per cent for the third quarter. But the weak data will not have taken its Monetary Policy Committee by surprise. In the minutes of its October meeting, the MPC said there was evidence that third-quarter growth was weaker than it expected. Michael Hume, an economist at Lehman Brothers, said: "The Bank knew at the time of its last meeting that 0.9 per cent was completely out of reach."

But economists cast doubt on the reliability of yesterday's numbers, in particular the extent of the weakness in manufacturing, and said the data could well be revised up next month. Philip Shaw, at Investec, said: "While the US 'soft patch' is exerting some negative pull on all the economies in Western Europe, there is nothing to suggest that the UK manufacturing sector is contracting. "

Figures this week showed retail sales surged 1 per cent in September, taking analysts by surprise. On balance, this week's data suggests that interest rates will be kept on hold at next month's MPC meeting.

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