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'A reality check': Double dose of disappointing economic figures as recovery dented

Output from British factories fell unexpectedly in August

Hopes for a sharp pick-up in the UK recovery were dented today after a double dose of disappointing economic figures.

Output from British factories fell unexpectedly in August, sending overall industrial production down 1.1 per cent in its biggest monthly fall for nearly a year, according to the Office for National Statistics (ONS).

Official trade figures also dealt a blow as the deficit remained stubbornly high at £3.3 billion in August, down only marginally on the £3.4 billion recorded in July.

Experts said the data came as a "reality check" on the UK economy after recent excitement over recovery prospects has seen some economists forecasting growth of more than 1 per cent  between July and September - the best quarterly economic performance for six years.

The pound suffered after the figures, down against most major currencies and nearly 1 per cent  lower to just under 1.60 US dollars.

Samuel Tombs, UK economist at consultancy Capital Economics, said the figures "may dampen hopes that the recovery picked up much more pace in the third quarter as well as undermine hopes that the economy is finally rebalancing".

He added that while industrial production is still likely to contribute to overall growth in the third quarter after a decent performance in June and July, the trade deficit could act as a significant drag.

Howard Archer, chief UK and European economist for IHS Global Insight, is forecasting the wider economy to have grown by 0.8% in the third quarter, up only marginally on the 0.7 per cent  hike seen the previous three months.

A 1.2 per cent fall in manufacturing output was behind the disappointing industrial sector performance, which came against expectations for a 0.3 per cent rise.

There were big falls in output from food manufacturing, pharmaceuticals and electronic goods.

But the sector is expected to have rebounded in the autumn, with the underlying trend remaining robust as the ONS said industrial output was 1.1 per cent  up in the three months to August against the previous three months.

Manufacturers' organisation EEF said the August disappointment was a "monthly setback".

EEF chief economist Lee Hopley said: "Manufacturing should make a positive contribution to third-quarter gross domestic product growth and other business surveys seem to align behind a continuation of this trend through the final months of the year."

The British Chambers of Commerce (BCC) raised concerns that the trade figures revealed "inadequate" progress on rebalancing the economy.

The deficit is already bigger in the first two months of the third quarter than the whole of the second quarter.

But there were signs of improvements, as exports to countries outside the European Union rose by £0.7 billion to £12.3 billion in August, which helped offset a £0.4 billion drop in EU trade to £12.8 billion.