Sterling falls sharply as UK production falls at its fastest rate in four years
The pound has fallen sharply against the dollar as a big fall in manufacturing production contributed to the biggest fall in UK production for more than four years.
The decrease surprised analysts and could deal a blow to the nation's GDP growth expectations.
Reduced output in the UK’s oil and gas industries also contributed to the 1.3 per cent drop in October to reach its lowest point since February, according to the Office for National Statistics (ONS), continuing a steady downward trend since July, after the UK voted to leave the European Union.
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The pound fell as low as $1.2578 against the US dollar at the time of publication – a fall of over 0.7 per cent after opening at $1.2678.
A negative swing for manufacturing also contributed to the fall in overall production. After growing in September by 0.6 per cent, manufacturing fell by 0.9 per cent in October, with pharmaceuticals the biggest driver as it production fell by 3.6 per cent.
The index of production fell by 1.3 per cent in October
Surveys of UK manufacturers have held up well since the vote (although the manufacturing production managers' index did post a decline in November) as possible effects from the Brexit vote have not yet been realised. The major exception so far is the fall in the value of the pound, which will eventually feed through to higher input prices.
Lee Hopley, chief economist at manufacturers' association EEF, said: "This is not the start to the fourth quarter that we expected to see in the official statistics, given the rather more buoyant survey indicators over the past few months."
However, ONS statistician Kate Davies blamed the fall mainly on the closure of a giant oil field in the North Sea for maintenance. The fall was “largely down to the total shutdown of the major Buzzard oil field,” she said.
Oil and gas extraction comprise 9.6 per cent of overall production, so the figures are sensitive to the industry.
The UK’s production and manufacturing have struggled to recover to pre-financial crisis levels. The rolling quarterly levels for October are still 8.6 per cent and 5.7 per cent below levels recorded in March 2008, when the scale of the crisis was still becoming apparent.