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U.K. Industrial Output Expands For Second Month; Visible Trade Gap Narrows

UKIndustrial ManufacturingOutput 121013

British industrial production increased for the second straight month in October, boosting hopes of a strong recovery in the fourth quarter, the Office for National Statistics said Tuesday.

Further, the trade data today showed that the visible trade gap narrowed as imports declined more than shipments in October.

Industrial production grew 0.4 percent from September, in line with expectations, but below the 0.9 percent increase posted in September.

Manufacturing output also increased 0.4 percent in October as expected by economists, down from the 1.2 percent rise seen in September.

All major sectors of industry, except mining and quarrying, contributed to growth. Oil and gas extraction exerted downward pressure on production as activities in North Sea oil and gas reserves turned more challenging.

On a yearly basis, industrial output growth accelerated to 3.2 percent in October, the highest since January 2011, from 2.2 percent in September.

Likewise, manufacturing output gained 2.7 percent, which was the fastest since May 2011, and more than doubled the 0.7 percent increase seen in September.

Another report from the ONS showed that the visible trade gap narrowed in October as the decline in imports exceeded the fall in exports.

The trade gap fell less-than-expected to GBP 9.7 billion in October from GBP 10.1 billion in September. The deficit was forecast to narrow to GBP 9.2 billion.

Exports decreased GBP 0.3 billion or 1.3 percent from the previous month and imports slipped GBP 0.7 billion or 1.9 percent in October.

The visible trade deficit with EU countries widened to GBP 6.5 billion from GBP 6.2 billion in September. Meanwhile, the shortfall with non-EU nations narrowed to GBP 3.3 billion from GBP 3.9 billion.

The deficit on goods trade was partly offset by an estimated surplus of GBP 7.1 billion on services. The overall trade balance showed a GBP 2.6 billion shortfall, unchanged from September.

October's production figures point to the likelihood of producers putting in another decent performance in the fourth quarter, Martin Beck, a UK economist at Capital Economics said.

With household spending powering the economic recovery, import growth could start to pick up in months ahead, the economist noted. For now, the U.K.'s economic recovery looks like remaining a distinctly domestic affair, he added.

In an interview on the "Charlie Rose" show on Bloomberg television, Bank of England Chief Mark Carney said a lot of stimulus is required but such measures can create risks. "We need to take other steps in order to reduce those risks," he said.

"If we don't, we're going to create bigger problems down the road or we're going to have to pull back too soon on monetary policy, which is the last thing we want to do," Carney said.

Yesterday, Carney expressed concern about potential developments in the housing market. "There is a history of things shifting in the U.K., and of the housing market moving from stall speed to warp speed, and underwriting standards slipping," he told reporters. "We want to avoid that."

In sync with such concerns, the property market surveyors' group RICS said that rose to a 14-year high in November with 59 percent surveyed expecting an increase in the next three months.

Elsewhere, data released jointly by the Bank of England and Financial Conduct Authority today showed that gross advances, including lending to first-time buyers and buy-to-let lending and new commitments are at their highest levels since 2008.

At the same time, interest rates on new lending, the number of new arrears cases and stocks of possessions cases remaining unsold are at their lowest level since the series began in 2007.

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