Total industrial output fell 0.1 per cent after a 0.1 per cent rise in July. The reason was a 0.3 per cent drop in manufacturing output following a 0.5 per cent increase the previous month.
The biggest contribution to the surprise decline was made by the coke and oil refining sector, where output dropped 6.8 per cent during the month. The Treasury said there were special factors affecting oil refining, including an explosion at the Milford Haven refinery and its after-effects. Excluding these, the output trend remained strong year on year.
The rail strikes were another possible reason for a weaker August figure. However, most City analysts said manufacturing production was flat at best after one- off events were taken into account.
There were month-on-month falls in production in engineering, textiles and 'other' manufacturing. Output in the textiles and metals industries was lower in August than at the beginning of 1993. Only in the food and drink sector was output growth still rising.
Ian Shepherdson, UK economist at Midland Global Markets, said: 'Engineering includes the car manufacturers, and this latest fall came before Ford announced that it was cutting production. If others follow it will really take the shine off this sector.' Engineering industry output fell 0.3 per cent in August and declined in four of the six months from March.
At the sharp end, manufacturers reported mixed signals. Norman Ireland, chairman of BTR, said recovery would remain patchy. 'I was never very optimistic about the speed of recovery,' he said. 'There is still too much capacity around, which means it is tough to win business.' BTR's construction operations were improving but some of its heavy engineering division had seen no growth.
GKN said there was some nervousness about the state of the economy, but one month's figures would not cause panic. At British Steel there was no surprise at the dip in the third quarter, but generally all its markets were firmer. In its structural section, which makes large beams and columns and accounts for 25 per cent of turnover, foundries are working at full capacity.
Most economists said the production figures showed that output growth, although still strong in annual terms, was clearly slowing down. Industrial output rose 4.6 per cent in the year to August compared with 4.8 per cent in the 12 months to July and rates of 5-6 per cent earlier this year.
John Shepperd, chief economist at Yamaichi Europe, said: 'It is dangerous to get too excited about one month's figures, but they do place a question mark over the pace of growth.' He said the concentration of weakness in production of investment goods was disappointing. Output of investment goods fell 0.9 per cent in August while that of consumer goods rose 0.4 per cent.
Industrial output accounts for nearly a third of gross domestic product. Mr Shepherdson said that even with a big rebound in production in September the increase in GDP in the third quarter would turn out to be much lower than earlier in the year.
'There will be a meaningful slowdown in the rate of recovery, and one of the rationales for interest rate rises will be knocked on the head,' he said.
The pound weakened early on but closed slightly higher. Gilt and share prices rose, helped by a quiet day on Wall Street in advance of today's all-important US employment figures. The FT-SE 100 index climbed 28.1 points to 2,984.4.Reuse content