Industrial output in decline despite fall in sterling

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Falls in sterling since the Brexit vote failed to boost Britain’s manufacturers in October as industrial output, also hit by a shutdown at the country’s largest oilfield, suffered its biggest monthly drop since 2012.

Industrial production sank 1.3%, Office for National Statistics data showed on Wednesday, December 7 – a steeper decline than any economist had forecast in a Reuters poll.

The last time the fall was bigger was in September 2012, when the Buzzard oilfield in the North Sea also underwent extensive maintenance.

Oil and gas output, which fell 10%, is likely to recover rapidly. Buzzard, which accounts for nearly a fifth of British offshore oil production, reopened on October 28, though it will pump less than before.

Economists said the drop in factory output, while smaller, was more concerning and underscored how the upbeat tone in industry surveys since Britain voted to leave the European Union in June was not translating into official data.

“This report is likely to prompt a more cautious approach when it comes to interpreting some of the relatively sanguine post-referendum survey evidence,” RBC economist Sam Hill said.

Sterling, whose weakness makes British goods on average cheaper for foreign buyers, recorded its biggest slide in two months after the data, hitting a one-week low against the euro.

It has fallen 10% against the common currency and 15% against the dollar since the Brexit referendum. October’s decline in industrial output contributed to a 1.1% year-on-year fall, the steepest since August 2013.

Manufacturing contracted by 0.9% on the month after a 0.6% rise in September, bucking economists’ forecasts for another gain. The decline was spread across a range of industries, the ONS said.

Overall, Britain’s economy has performed much better than almost all economists forecast since the Brexit vote.

Stronger exports have helped but most of the growth has been down to robust consumer spending, which many economists expect will slow as the weak pound pushes up inflation next year.

The Bank of England forecasts growth will slow to 1.4% next year from 2.2% in 2016, and that inflation will triple from its current rate of 0.9%.