Hosepipe ban causes industrial output to fall

The hosepipe ban contributed to a sharp fall in output in the energy sector in June that caused industrial production to contract unexpectedly, official figures showed yesterday.

Industrial output fell 0.1 per cent between May and June compared with a predicted 0.2 per cent rise, the Office for National Statistics said. That left output 0.7 per cent lower than a year earlier. The figures also exposed the fragility of Britain's manufacturing recovery after the sector grew just 0.1 per cent in June, which was weaker than forecast.

Electricity, gas and water supply fell 3 per cent, as the hosepipe ban cut water use, while oil production declined on the back of a summer overhaul for the country's energy extraction sectors that shut oilfields. The main gas pipeline between the UK and Europe was also out of action for a fortnight.

Analysts said the data was unlikely to stop the Bank of England from raising rates again after last week's shock increase to 4.75 per cent. Mervyn King, the Governor, will be pressed on whether the increase was preventative or a harbinger of more to come when he unveils the Bank's quarterly inflation report tomorrow.

The rate increase prompted the British Chambers of Commerce to revise its growth forecasts for 2007 yesterday, predicting that the pace of economic growth would slow in the second half of this year and during next year.

The BCC reined back its forecast for next year to 2.4 per cent from 2.5 per cent, warning: "If the base rate increases to 5 per cent or higher, the negative implications for the UK economy would be very serious." Analysts were more relaxed about the impact of weaker industrial output, which is notoriously volatile and contributes just one-fifth of the economy's growth. The ONS estimated that yesterday's figures would knock the preliminary estimate of GDP growth in the second quarter by just 0.02 per cent.

The full impact of the summer heatwave - last month was the hottest July on record - on industrial production will not become clear until next month's data, which is likely to show that demand for air conditioning boosted electricity usage.

The hot weather knocked consumers' appetite for shopping, with the number of shoppers prepared to brave the oven-like temperatures of some retailers down by 2.2 per cent in July compared with the same month last year, according to FootFall, which measures shopper traffic.

July was better than June for retailers: 2.5 per cent more people ventured on to the high street than during the World Cup, the consultancy said.