Factory output records surprise dip

Manufacturing output unexpectedly fell in September for the second straight month, falling short of analysts' predictions of recovery in the struggling sector.

Official figures from the Office for National Statistics (ONS) show that factory output dropped 0.3% from August, significantly below the industry forecasts.

The decline is the largest since March, and on the year, production has fallen 0.8% over September 2004 levels.

Good news, however, comes in the form of upward revisions to both July and August production totals, which the ONS upgraded by 0.3%.

The three-month trend also shows output increasing 0.4% over the third quarter compared to the second quarter of this year, with six of the 13 manufacturing sub-sectors showing gains.

Nevertheless, today's figures are a disappointment for factory owners who had been expecting a recovery following months of being mired in technical recession.

Other recent surveys have shown the market climbing slowly out of contraction, and market observers had predicted a 0.5% increase in production in September.

Today's data prompted business groups to restate their desire for a further cut in interest rates.

"Today's figures reinforce our view that the threat of renewed manufacturing recession is very real," said David Kern, economic adviser to the British Chambers of Commerce (BCC).

"[We] believe that we will need further interest rate cuts in the near future. The financial markets do not expect a further interest rate cut on Thursday, although we hope that the [Monetary Policy Committee] will feel able to act, either this week or very shortly.

"As well as expecting the MPC to maintain a flexible stance, we wish to see firm action from the government to support manufacturing."