Mixed UK Figures Raise Doubts for 4Q10

Recent data has revealed a larger-than-expected jump in production levels in the UK manufacturing sector, while also revealing a drop in industrial output.

Manufacturing production was up by 0.6% in October, beating expectations that called for a more modest 0.4% rise. However, the data was offset by a disappointing reading of industrial production, which showed a 0.2% decline on the month, against forecasts for a 0.3% rise. The drop in output was driven by a drop in mining and quarrying production, and serves as a reminder of the tough conditions still to come amid a reduction in private and public expenditure.

That manufacturing production remains strong is certainly encouraging but without support from the industrial sector, fourth quarter economic growth could suffer. As yet the market has shown little reaction to the news with sterling holding broadly unchanged just above €1.18.

Duncan Higgins, senior analyst at Caxton FX, said: “The improved manufacturing levels are consistent with a run of encouraging figures from the UK economy of late. However, clearly the industrial sector is lagging and this will have an impact on fourth quarter economic growth. To a broad extent the market has priced in a slowdown in the final three months of the year and so the impact on sterling has been fleeting at best.”


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