UK industrial output falls but consumers keep spending

November 8, 2016 7:26 AM EST

A worker at perforating company Bion uses a machine at the factory in Reading, Britain September 22, 2016. REUTERS/Peter Nicholls/Files


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By Andy Bruce and William Schomberg

LONDON (Reuters) - British industrial output unexpectedly fell in September but there were fresh signs that consumers have kept up their spending despite rising inflation pressures and uncertainty around the country's exit from the European Union.

British industry dragged on otherwise robust economic growth in the third quarter, official data showed on Tuesday,

By contrast, two separate private sector surveys pointed to a surge in consumer spending in October.

Taken together, the surveys painted a familiar picture of the British economy, with growth led by household spending while industry and investment lag.

Industrial output fell 0.4 percent month-on-month in September, repeating its weak performance of August, the Office for National Statistics said. Economists polled by Reuters had expected it to stagnate.

The fall was due to warm weather, which hit power output, and maintenance shutdowns in North Sea oil and gas fields.

Factory output grew 0.6 percent, the biggest rise since a surge in April, but shrank by 0.9 percent in the third quarter as a whole.

"While the September number is good news, we hesitate to get too excited by one good month, particularly as costs start to rise and uncertainty remains in place," HSBC economist Elizabeth Martins said.

Prices paid by factories for materials and energy have rocketed in recent months and there were some signs in Tuesday's surveys that this was starting to feed through to consumers.

Barclaycard, the credit card division of Barclays , said spending on its cards rose 5.5 percent year-on-year last month, the biggest jump since the survey started in 2011.

Some of the rise reflected higher motor fuel prices since the pound's drop after the Brexit vote. Barclaycard said 81 percent of Britons were worried about inflation, citing a YouGov poll it commissioned.

"Rising prices were .. a contributing factor – notably on petrol forecourts and for consumers traveling abroad," said Paul Lockstone, Barclaycard's managing director.

SHRINKING CHOCOLATE BARS

Britons with a sweet tooth have been hit by rising inflation too. Manufacturer Mondelez International has upset some of them by reducing the size of its popular Toblerone chocolate bars in the UK because of the rising cost of ingredients.

The British Retail Consortium, representing the retail industry, said spending in shops jumped 2.4 percent compared with a year ago, the strongest annual growth since January and up from growth of 1.3 percent in September.

Britain's economy has coped well so far with the shock of the Brexit vote, underlined by a survey of recruitment companies on Tuesday that showed hiring of permanent staff grew at the fastest pace in eight months during October.

But most of the growth has been driven by the dominant services sector. Industrial output declined 0.5 percent in the third quarter - a slightly bigger fall than the ONS predicted in its preliminary estimate of economic growth.

Manufacturing has yet to show a big boost from the fall in sterling since the Brexit vote. The ONS said there were no obvious signs so far that the weak pound or uncertainty had affected UK factory output.

(Reporting by Andy Bruce; Editing by Mark Trevelyan)



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