UPDATE 3-UK Oct factory output at 7-mth high, risks seen

* Manufacturing output up 0.6 pct, double expectations

* Industrial output falls, partly due to seasonal factors

* Slow start to growth in Q4, risks ahead from spending cuts

(Adds NIESR forecast)

By Fiona Shaikh and Kate Holton

LONDON, Dec 7 (BestGrowthStock) – British manufacturing output rose
twice as fast as anticipated in October but wider industrial
production unexpectedly fell, suggesting the pace of economic
growth slowed early in the final quarter.

Although the pick-up in manufacturing raised hopes the
sector can continue to buoy the economy, the broader weakness
indicates the heady pace of growth recorded between April and
September may not be sustained.

Manufacturing output rose 0.6 percent in October, according
to figures from the Office for National Statistics on Tuesday,
three times September’s gain and the biggest monthly rise since
March.

However, sharp falls in mining, utilities and oil and gas
extraction pushed industrial output down 0.2 percent on the
month after September’s 0.4 percent rise, confounding
expectations for a 0.3 percent increase.

The decline was partly due to seasonal adjustments and
analysts said this traditionally volatile component did not
alter the broader picture of an economy that is slowly becoming
more balanced.

Exports have helped boost growth in the last two quarters.

Even so, financial turbulence in the euro zone, Britain’s
main trading partner, and signs of slowdown elsewhere, pose
risks to the recovery.

“Manufacturers have largely benefited through 2010 from
healthier demand both at home and overseas, improved
competitiveness in both domestic and foreign markets stemming
from the weak pound and a major rebuilding of stocks,” said
Howard Archer, economist at IHS Global Insight.(EURGBP=: )(GBP=: )

“(But) how well can manufacturing activity hold up as stock
rebuilding draws to a close, tighter fiscal policy weighs down
on domestic demand, and likely slower global growth threatens
foreign demand for UK products?”

Bank of England policymakers are debating that question and
Tuesday’s data did little to alter expectations the central bank
will leave interest rates on hold this month and for some time
to come as it weighs up the risks to the recovery.

FOGGY OUTLOOK

Britain’s GDP grew 0.8 percent between July and September,
according to official data, and the National Institute of
Economic and Social Research think tank said on Tuesday it
thought the economy had grown by 0.6 percent in the three months
to November.

That compared with its estimate of a 0.5 percent rise in the
three months to October and 0.8 percent in the three months to
September.

The ONS said output rose in 8 of the 13 manufacturing
subsectors, with the biggest gains booked in the transport,
machinery and equipment and electrical and optical equipment
sectors.

Analysts said October’s overall decline in industrial output
was likely to be reversed in November, and that a purchasing
managers’ survey of manufacturing for that month indicated the
sector would continue to enjoy solid growth.

However, the outlook for next year and beyond is foggier,
with domestic consumer demand likely to be hit by a rise in
value added tax, muted wage growth and public sector job cuts.

Separate figures on Tuesday indicated the Christmas shopping
season got off to a slow start, with Britons worried about their
finances and job prospects. [ID:nSLA6NE6K6]

“For now, it looks like industry is in a good position to
help to offset some of the effects of the looming squeeze,” said
Vicky Redwood of Capital Economics.

“But as we have warned before, the sector is not big enough
on its own to keep the overall economic recovery going as the
public and consumer sectors retrench.”

(Editing by John Stonestreet/Ruth Pitchford)

UPDATE 3-UK Oct factory output at 7-mth high, risks seen