U.K. Manufacturing Production Unexpectedly Stalled

By Scott Hamilton

Dec. 8 (Bloomberg) -- U.K. manufacturing unexpectedly stalled in October, a sign the economy is struggling to shake off the longest recession on record.

Factory output was unchanged after gaining 1.5 percent in September, the Office for National Statistics said today in London. Economists predicted a 0.4 percent increase, according to the median of 21 forecasts in a Bloomberg News survey.

Bank of England policy makers will probably maintain their bond-purchase plan at 200 billion pounds ($328 billion) this week as they assess whether the economy has shaken off the slump. Chancellor of the Exchequer Alistair Darling said yesterday that he would rather suffer criticism for removing support for the economy too late than too early.

“At first glance it is below expectations, but it was coming off a strong month in September,” said Peter Dixon, an economist at Commerzbank AG in London. “All in all, I’m not too worried about it. Most of the data is pointing towards a stabilization and it’s still consistent with a recovery.”

The pound was little changed after the data and traded at $1.6358 at 9:47 a.m. in London, down 0.7 percent from yesterday.

Of the 13 categories in manufacturing, four rose, led by machinery and equipment, the statistics office said. Nine fell, and the biggest decline was in electrical and optical gear.

Smiths Group Plc, the world’s biggest maker of mechanical seals for the energy and marine industries, said Nov. 17 demand from manufacturers for its seals and aftermarket services had declined since the end of July.

Forecast

U.K. factory production will begin growing again next year as exports rebound, the Engineering Employers Federation said yesterday. Production will grow 0.9 percent in 2010 after contracting 10.4 percent this year, according to the London- based lobby group.

Overall industrial production, which includes mining, quarrying, utilities, oil and gas and accounts for 17 percent of the economy, was unchanged on the month and dropped 8.4 percent from a year earlier, the statistics office said.

Production fell 0.9 percent in the third quarter, revised down from a 0.8 percent drop. The revision will have a “negative” effect on the gross domestic product estimate for the quarter, officials said.

The U.K. economy contracted 0.3 percent in the three months through September, the sixth quarter of contraction, making this the longest slump since records began in 1955.

The Bank of England will this week decide to keep unchanged its bond program, according to all 38 economists in a Bloomberg News survey. All 53 economists in a separate survey said policy makers will also hold their key interest rate at 0.5 percent. The bank announces its decision at noon in London on Dec. 10.

To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net.