World Economy

Britain’s 4Q GDP Growth Dented

Industrial production plunged below expectations.Industrial production plunged below expectations.

Britain’s manufacturing output unexpectedly slumped in October as a sharp drop in pharmaceutical production dragged on the industry.

In a blow to hopes that UK economic growth would hold up in the fourth quarter, official figures showed manufacturing output fell 0.9% in October, down from a 0.6% rise in September, with economists eyeing 0.2% growth, news outlets reported.

The Office for National Statistics also said industrial production plunged below expectations, dropping for the third month on the bounce to a decline of 1.3% in October.

Total production was also hit by its largest monthly drop in four years, as oil and gas extraction plummeted 10.8% after the Buzzard North Sea oil field was shut down for maintenance.

Economists had been penciling in total production output to grow 0.4% month on month.

Katie Davies, ONS senior statistician, said: “October saw a sharp fall in UK oil output, largely down to the total shutdown of the major Buzzard oil field. Small falls in output across a range of sectors also contributed to a drop in overall manufacturing.”

Manufacturing PMI figures misled predictions for October. They had painted a brighter future for the sector, with output hitting 54.3.

The ONS figures are now likely to dent the UK’s fourth quarter GDP growth.

Howard Archer, analyst at IHS, said: “We had believed that there was a good chance that UK GDP growth in the fourth quarter could match the resilient 0.5% quarter-on-quarter achieved in the third quarter.

“October’s 1.3% drop in industrial production puts a significant dent in fourth quarter growth prospects as it will now look odds-on that the sector will contract in the fourth quarter and possibly markedly—even allowing for the fact that there could be a marked bounce back in oil and gas extraction as the oilfield comes back into operation.”

The dismal economic update also heaped further pressure on the pound, which was dropped 0.6% against the dollar to $1.26 shortly after the announcement.

Caxton FX analyst Alexandra Russell-Oliver said: “Sterling continued to reverse gains made at the start of the week, after briefly clawing back some ground in the morning session. After eying 1.190, GBP/EUR fell back towards 1.180, while GBP/USD fell back below 1.270.

“Focus on the pound will continue as the Supreme Court continues to hear the government’s Brexit appeal. Prime Minister May agreed to set out the government’s Brexit plans for parliament.”

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