UPDATE: UK Sep Mfg 7-Yr High Boosted By Re-opening Factories

(Adds detail, economist comment)

   By Joe Parkinson and Ilona Billington 
   Of DOW JONES NEWSWIRES 

LONDON (Dow Jones)--U.K. manufacturing output rose at its fastest pace for seven years on the month in September, as broad-based gains and the re-opening of factories helped lift the data above market expectations, the Office for National Statistics reported Thursday.

According to the ONS, U.K. manufacturing output rose 1.7% on the month in September following a downwardly revised 2.0% fall in August. That marked the strongest monthly performance since July 2002, when the measure rose 4.3%.

Output on the year declined 9.3%, moderating from a downwardly revised 11.6% fall in August.

An ONS spokesman said that anecdotal evidence suggested that more firms extended their summer shutdown for the whole of August, from the traditional closure of mid-July to mid-August. This may have artificially raised the output in September and depressed the reading for August.

Economists warn that this suggests the underlying strength in the manufacturing sector remains weak.

"Taking a step back, the fact that firms saw fit to have extended summer shutdowns in August tells you something about underlying demand conditions. Had they been robust, there wouldn't have been shutdowns," BNP Paribas's U.K. economist Alan Clarke said.

The August data were originally reported as falling 1.9% on the month and declining 11.3% in year-on-year terms.

The September performance was stronger than the expectations of economists surveyed by Dow Jones Newswires, who tipped manufacturing output to rise 1.0% on the month and fall 9.7% on the year.

The monthly jump was driven by rises in 10 of the 13 subsectors, with large gains in automotive and electrical production, the ONS said.

The better than expected numbers will likely be welcomed by Bank of England policymakers, who announce later Thursday whether the central bank will expand its GBP175 billion bond-buying program to boost economic activity.

But an ONS spokesman cautioned that the gains would have "no material impact" on the disappointing 0.4% quarterly decline in third quarter gross domestic product when the first revision is published later in November.

While the strong end to the third quarter is good news for the economy, indications are that the manufacturing sector will remain depressed for some time, economists say.

"Industrial surveys such as the Chartered Institute of Purchasing & Supply PMI report on manufacturing published earlier this week suggest that industry will begin to expand in the fourth quarter, helping overall gross domestic product growth to turn positive," said Capital Economics chief European economist Jonathan Loynes, "Nonetheless, with production still down by more than 10% on a year ago, the road to recovery in industry will be a long and bumpy one," he added.

According to the ONS, the wider measure of industrial production also beat expectations, gaining 1.6% on the month and declining 10.3% on the year.

Economists had forecast this measure would rise 1.3% on the month and drop 2.5% in annual terms.

The ONS previously reported industrial production was 2.5% lower on the month in August and fell 11.2% from July 2008.

-By Ilona Billington and Joe Parkinson, Dow Jones Newswires; +44 20 7842 9452; ilona.billington@dowjones.com

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(END) Dow Jones Newswires

November 05, 2009 06:03 ET (11:03 GMT)


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