Fastest UK production since 1987 signals recession end

Fri Sep 7, 2012 7:47am EDT
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By Sven Egenter and Matt Falloon

LONDON (Reuters) - British industrial output grew at its fastest pace in 25 years in July, making up all the ground lost due to an extra public holiday in June and raising the chances that the economy is crawling out of recession.

Separate data from Office for National Statistics showed cost pressures for firms were rising again, a potential concern for the Bank of England, which is hoping that falling inflation will ease pressure on cash-strapped British consumers.

While the price and production data may raise doubts over the need for further monetary stimulus from the central bank, the economy's fragility and vulnerability to Europe's debt crisis mean most economists still expect another dose of easing.

"On balance, we still think we'll get more quantitative easing in November," said Investec economist Victoria Clarke.

"But if these figures continue through the rest of the quarter, coupled with a broader rebound, that could start to look a bit more debatable and it could make that November meeting certainly more lively."

Britain's economy has still not fully recovered from a 2008-2009 slump. It slipped back into recession late last year as the euro zone debt crisis hurt export demand and business confidence, compounding the effects of the government's tough austerity plans aimed at erasing a huge budget deficit.

The economy is likely to show some growth in the third quarter thanks to the rebound in production and sales of tickets for the London Olympics and Paralympics, which may add 0.2 percentage points to growth in the third quarter.

Manufacturing output jumped 3.2 percent in the month of July after a drop of 2.9 percent in June, when an extra holiday to mark Queen Elizabeth's 60 years on the throne hit output, the Office for National Statistics said.   Continued...

A gull flies near construction cranes with the Shard building seen behind in London August 24, 2012. REUTERS/Toby Melville