UK industrial output slumps

No light at the end of the tunnel for UK industry

The UK's industrial sector put in its worst performance for a decade in October.

The figures, released by the Office of National Statistics, showed UK industry to have shrunk 1.1% compared to the previous month and 4.2% compared to October 2000.

This shows the (industrial) sector is still going through a significant and serious period of adjustment

Adam Chester
Halifax

The 12-month slide is the worst since the UK's last recession in 1991.

But the numbers for manufacturing, a narrower index which excludes oil, gas and utilities, were less severe.

Chorus of concern

The statistics are much worse than most observers had expected.

Predictions for the broader industrial output averaged a 0.1% contraction, while manufacturing was expected at worst to stand still.

"These are very weak numbers and the market was looking for a rebound," said Adam Chester from Halifax.

"This shows the sector is still going through a significant and serious period of adjustment."

The latest figures follow a chorus of concern about the state of manufacturing in particular, which has been described by the British Chambers of Commerce (BCC) as being in a "critical condition".

They also reinforce the impression that the UK's is a two-speed economy, with industry in the doldrums and services still performing well.

Gloomy outlook

The BCC's most recently quarterly survey, published in October, showed sales weakening sharply.

It predicted that once the Christmas rush was over consumer confidence would begin to wane, cutting further into the health of the industrial sector.

Job losses - exemplified by British Telecom's decision this week to axe a further 4,000 posts - are also likely to damage consumer confidence, according to a new survey from the Recruitment and Employment Confederation (REC).

The survey indicated that the demand for permanent staff dropped in November for the sixth month running, although the figures were not as bad as the dire numbers reported for October.

And the Purchasers' Manufacturing Index - a key barometer of confidence in the sector - released earlier this week was also negative.

The seven interest rate cuts made by the Bank of England's Monetary Policy Committee (MPC) since the beginning of the year, down to 4% from 6%, seem to have failed to have their desired effect on the country's industry.

"One thing this year has shown is that interest rates do very little to help the industrial side when the global economy is so weak," said John Butler, economist at HSBC.

"In our view, cutting rates further from will will only destabilise the economy more."

Going down

Manufacturing showed a 0.3% decline compared to the previous month, and a 4.4% on a year-on-year fall.

But manufacturing has been under intense pressure from high exchange rates for so long that the modest magnitude of the monthly fall will come as cold comfort.

And the situation in September had been so bad that few had expected a sharp decline thereafter.

"If we strip out the technology side of manufacturing output, there has really been very little growth over the past 10 or 12 years," said Simon Rubinsohn of Gerrard.

Mixed picture

Within the overall figures, there were one or two bright spots.

The production of transport equipment rose sharply in the three months to October, with vehicle output up 8.9% and parts and accessories output growing 7%.

But IT hardware fell 8.6% and telecoms equipment slipped 5.8% - or 43.1% down on the year.