Manufacturing dip fuels concerns
Wednesday 07 December 2011
Fears of a double-dip recession were fuelled today as official figures revealed the first three-month decline in manufacturing output in two years.
Manufacturing fell 0.7% in the three months to October, compared with the previous months, while output also fell 0.7% month-on-month, the Office for National Statistics (ONS) said.
The decline was driven by falls in the metals, repair and pharmaceutical industries and dragged the overall index of production, which includes the mining and energy sectors, down by a worse-than-expected 0.7%.
Economists said the figures added to mounting evidence that the economy will contract in the fourth quarter of the year, between October and December, following similarly bleak purchasing managers' index (PMI) data.
Samuel Tombs, UK economist at Capital Economics, said: "October's official UK industrial production figures are even weaker than we or the consensus had expected and suggest that the risk that the overall economy re-enters recession in the fourth quarter remains high."
Industry surveys have suggested that the manufacturing sector's performance has worsened recently, fuelling fears that the UK could slide back into recession.
The Markit/CIPS PMI survey reading for manufacturing last week saw further declines in orders and employment as the index hit its lowest level since early 2009.
The manufacturing sector played a vital role in the early stages of the UK's recovery as it benefited from the fall in the value of the pound and the "rebalancing" of the economy through more exports.
But the eurozone debt crisis has hit exports, while UK demand is being held back by the consumer spending squeeze and public spending cuts.
Chris Williamson, chief economist at Markit, said: "The current woes of manufacturers raises the likelihood that the UK economy will stagnate in the fourth quarter, and the combination of subdued demand at home and the ongoing crisis in the eurozone suggests that the risks of the UK following the single currency area into another recession have grown considerably."
The ONS added that mining and quarrying fell by 14.1% in October compared with a year ago, while energy supply fell by 5.4%.
Energy supply fell 4.9% month on month as fewer households cranked up the thermostat during the warmest October since 2006, the ONS said.
David Kern, chief economist at the British Chambers of Commerce (BCC), said he would like to see the Bank of England announce a further £50 billion of quantitative easing at its policy meeting tomorrow to stimulate growth.
However, most economists expect the Bank to leave QE levels unchanged at £275 billion, following October's £75 billion boost.
Mr Kern said: "While there is no need for undue pessimism about the sector's future, as many firms preserved their skills base during the recession, there will be serious challenges in the months ahead, particularly for those that rely on exporting to Europe."
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