UK industrial output weakens while trade deficit widens

UK industrial production fell in August, official figures have shown, hitting the recent run of upbeat economic news.

Industrial production fell by 0.4% between July and August, the Office for National Statistics said, partly due to a drop in oil and gas production.

Manufacturing rose 0.2%, although this followed a steep fall in July.

Separate figures from the ONS showed that the UK’s trade deficit widened in August.

The UK’s deficit on trade in goods and services was estimated at £4.7bn, compared with £2.2bn in July. The deficit on trade in goods alone widened by £2.6bn to £12.1bn.

The widening deficit comes despite hopes that the weaker pound – which is currently trading at the lowest rate in more than three decades against the dollar – will boost demand for British goods.

Exports rose by just £100m against expectations of a £4bn increase. Imports, however, rose by £2.6bn in August following a slump in July.

Oil field shutdowns

ONS senior statistician Kate Davies said: “Manufacturing output was up slightly in August with more cars built, with limited evidence suggesting the lower pound boosted exports.

“Nevertheless, this was offset by a fall in oil and gas production, with some field shutdowns contributing to the fall, meaning UK production as a whole was down. While exports continued to grow in August, the UK’s trade deficit widened, as imports grew at a faster rate.”

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, predicted that industrial production would fall further in September.

He noted that the Buzzard oil field in the North Sea, which accounts for 12% of total production, was shut down last month and households avoided putting the heating on as mild weather continued into September.

However, Mr Tombs said he still expected the economy to grow by 0.5% in the third quarter of the year, supported by strong data since the country voted to leave the European Union, including a 0.4% increase in Britain’s dominant services sector in July.

While Friday’s data was worse than expected, analysts do not expect the Bank of England to announce an immediate cut in interest rates, though they do not rule out a reduction in borrowing costs by the Monetary Policy Committee (MPC) by the end of the year.

Scott Bowman, UK economist at Capital Economics, said: “While these figures break the recent run of positive data for activity in the third quarter, the overall strength of recent data has probably lowered the chance of further monetary easing from the MPC.

“But committee members have previously warned against over-interpreting incoming data…so we still think that there is a decent chance that the bank rate will be cut to 0.10% in November.”