U.K. June Production Data May Lead to Upward Revision to GDP

U.K. industrial output fell less than estimated in June, indicating the recession may not have been as deep in the second quarter as previously reported.

Production dropped 2.5 percent from May due to the extra public holiday for the queen’s Jubilee, the Office for National Statistics said today in London. That’s smaller than the drop estimated in the second-quarter gross-domestic-product data, and the ONS said today’s numbers may mean a 0.07 percentage point upward revision to the 0.7 percent GDP decline.
Britain’s recession has worsened as the government’s austerity program and the euro-area debt crisis undermined confidence and curbed demand. The Bank of England, which maintained its current stimulus program last week, will probably cut its U.K. economic outlook when it publishes new forecasts tomorrow, according to a survey of economists.

“Any upward GDP revisions could provide a modest boost to sentiment and would be welcome news for the government,” London-based HSBC Holdings Plc economists John Zhu and Simon Wells wrote in a note to clients today. “However, even if these upward revisions do happen, the news for policymakers may not be huge, and the U.K. would still be stagnating.”

The monthly drop in industrial output was the biggest since November 2008. Still, it was less than the 3.5 percent median forecast of 30 economists in a Bloomberg News survey.
Quarterly Decline

The pound erased its decline against the euro after the report. It was up 0.2 percent at 79.30 pence per euro at 12 p.m. London time, after weakening as much as 0.1 percent before the data were published. Britain’s currency traded at $1.5654 against the dollar, up 0.3 percent from yesterday. The yield on the 10-year gilt rose 3 basis points to 1.53 percent.

In the second quarter, production fell 0.9 percent compared with the first three months of the year, the statistics office said. That compares with a 1.3 percent decline in production for the period estimated in the GDP data on July 25.

Today’s report also showed that manufacturing fell 2.9 percent in June from May, less than the 4.3 percent forecast of economists in a survey. In the three months through June, factory output slipped 0.9 percent from the previous quarter.

From a year earlier, both industrial production and manufacturing fell 4.3 percent, the biggest annual declines since October 2009.

Out of 13 manufacturing categories, six rose in June and seven declined, the ONS said. The drop was led by basic metals and metal products, as well as rubber and plastics.
Weakness Persists

Today’s data “does not fundamentally change the story of a struggling economy,” said Howard Archer, an economist at IHS Global Insight in London. “The manufacturing sector is continuing to find life very difficult in the face of strong domestic and global headwinds.”

A survey last week indicated the weakness in manufacturing continued into the third quarter, with factory output shrinking the most in more than three years in July. A separate report showed services, the largest part of the economy, grew the least in 19 months.

Britvic Plc (BVIC), the maker of Robinson’s fruit drinks, said last month that full-year results will be “at the bottom end” of analysts’ estimates. The company said business sentiment hadn’t improved since May, citing unseasonably wet weather and “weak consumer sentiment.”

The Bank of England kept its bond-purchase target at $375 billion pounds ($587 billion) and its benchmark interest rate at a record-low 0.5 percent on Aug. 2. All 16 economists in a Bloomberg News survey say the central bank will lower its 2012 economic outlook tomorrow, while all but one see a reduction in the 2013 projections. A majority also forecast a cut to the central bank’s inflation projections.