Industry could lead UK out of double-dip recession

UK industrial output increased at its quickest pace for 25 years, fuelling hopes that meaningful economic activity could finally pull the UK out of its double-dip recession.

The Office for National Statistics (ONS) said that output increased by 2.9 per cent in July after falling by 2.4 per cent in June when output was affected by the Queen’s Diamond Jubilee celebrations.

This is the best monthly reading for industrial output since February 1987 and manufacturing output rose by the largest monthly amount for ten years.

The ONS data showed a rise in 11 out of 13 categories

Manufacturing output rose by 3.2 per cent in July after falling by 2.9 per cent in June. However, it was still down by 0.5 per cent on July 2011’s data. And overall industrial production was down 0.8 per cent on 12 months earlier. Both sets of data did beat analysts expectations for the month.

Analysts warned that the news, whilst welcome, did not signal that the UK had conquered its economic problems. The Bank of England said economic conditions remain "unusually uncertain."

David Kern, Chief Economist at the British Chambers of Commerce (BCC), said: “It was widely expected that manufacturing output would recover in July after recording a large decline in June, but the increase was considerably larger than anticipated.

“However, longer-term trends in manufacturing are still disappointing, with output falling in year-on-year terms, and there is the prospect of a decline in 2012 as a whole.”

Separate data from the ONS said that costs for firms were rising again which could cause inflation to rise.

Britain has never convincingly pulled out of the recession of 2008 and 2009 as the euro debt crisis continues to hover like, in Mervyn King’s words a “storm cloud”, harming exports and limiting business confidence.

However, the positive industrial output and manufacturing data, coupled with the booking of Olympic ticket sales to the nation’s accounts should help ensure that the economy grows in the third quarter.

Howard Archer, Chief UK & European Economist at IHS Global Insight, said: “July’s sharp rebound in industrial production is excellent news that provides a significant lift to third-quarter GDP growth prospects.

“We had pencilled in GDP growth of 0.5-0.6% quarter-on-quarter in the third quarter but there is a real possibility that the economy could rebound by more than this.”