UK factory output eases to weakest since April 2021

The United Kingdom’s industrial output growth skidded to the slowest rate in more than a year in the three months to July. The downturn came as demand eased in the UK and overseas. Nevertheless, there are tentative signs that some challenges around inflation and investment indicated easing.

The Confederation of British Industry figures reported the slowdown on late Monday. Subsequently, output volumes and new orders in the quarter both increased at the most passive pace since April last year.

The results reflected a net balance of +6 firms that delivered a rise in output over the last three months. This UK figure significantly came in lower than the +19 mark in April but just above its long-run average of +2. In line with this, analysts anticipated a similar rate in the next reporting period.

Eventually, output improved in 10 out of 17 sub-sectors, with headline growth mainly driven by food, drink, tobacco, and aerospace. However, the UK domestic orders growth slowed in this period, while exports remained broadly flat.

Meanwhile, a broader CBI measure of manufacturers’ optimism advanced to -21 from a two-year low touched of -34 in April. It also surpassed the average market estimate of -45, but was still in negative territory for the third consecutive quarter.

UK central bank to raise rates by 25bps

Subsequently, investors expected the Bank of England to shy away from massive interest rate hikes in August. Instead, there are bets that the UK central bank will stick to the more modest 25 basis point lifts.

Still, the UK’s Monetary Policy Committee must decide next week whether to speed up the pace of the increase. They could consider a rare half-point rate rise to tackle the highest inflation in 40 years.

Accordingly, the mounting inflation has driven consumer sentiment to its lowest since records began in the 1970s. However, business activity has been slower to weaken.

Meanwhile, the recent speech from Governor Andrew Bailey stoke increased speculation that the BoE might opt for a larger move. The UK central bank has never delivered a half-point hike since gaining independence in 1997.