INSTANT VIEW 8-UK Aug factory output falls, trade deficit widens

LONDON, Oct 9 (Reuters) - British factory output fell more than expected in August and the country's trade deficit widened sharply, data showed on Tuesday, dampening prospects of a sustained recovery in the second half of 2012.

Following is a summary of the data and economists' reactions.


"The trade data shows modest performance of the exports sector, a small drop in goods exports but the main news is a pick-up in goods imports and that's lead to a widening of the trade deficit.

"Now that stands somewhat in contrast to a story of weak economic growth in the UK, but as of now, the weak manufacturing data is saying one story and the bigger deficit is telling another story, so we'll have to wait for more clarity to really get a sense of the strength of the economy.

"We think growth will be 0.5 percent or so (in Q3 GDP) but that's just a simple bounceback from a very weak Q2. The underlying growth picture is still fairly weak or modest, but there are lots of question marks in the detail of the data and that will probably get ironed out over time."


"The (production) data's certainly quite weak on the month but it seems that we are overegging the weakness in the figures. We saw some really choppy figures in previous months, it seems in this data as if we might expect the reprecussions to continue. I expect that the underlying trend is downward, but it's not as bad as this data looks.

"I think we are certainly looking to exit the recession (in Q3), but I think predictions that we might be looking at a growth rate of over 1 percent will be pared back after today.

"Even if industrial output was flat in September we'd still be looking at a growth rate of 1.3 per cent in Q3.

"Too early to say what we'll be looking at in the fourth quarter. Some issues regarding energy output will start to unwind in the coming months, and there should be some upside there.

"The interal side of the economy isn't exactly galloping, but we're still moving forward. We can expect a decent level of growth in the third quarter, and then something more modest in Q4."


"August's weak UK industrial production and trade figures indicate that the underlying trend in GDP is flat at best and therefore undermine hopes that the 'green shoots' of economic recovery are emerging.

"Admittedly, economic activity has been volatile in the last couple of months, mainly due to June's extra bank holiday. Nonetheless, the underlying trend in output seems to be slightly down.

"Both industrial production and exports were lower in August than in May - the last monthly figure that was unaffected by the Jubilee distortions. So, although GDP should see a technical bounce-back from the bank holiday in Q3, today's figures suggest that the underlying picture is still very weak."


"Today's IP report doesn't show any major surprise. UK manufacturing activity remained under pressure in August, despite the solid increase in business confidence (i.e PMI).

"The annual pace of decline of the manufacturing sector has been moving in a narrow range since the start of the year, suggesting a negative contribution to GDP growth.

"In Q3, IP might provide a boost to GDP growth as the average figures incorporate the technical rebound seen in July. However, the picture for manufacturing activity remains sluggish for the remainder of the year as demand from abroad is under pressure and companies are generally sceptical to revise their investment plans in the current uncertain environment."


"The manufacturing number does look somewhat weak and is more consistent with the weakness we've seen in the broader survey data. Certainly it looks like the manufacturing sector is struggling and being affected by the very weak euro area economy and weak global backdrop.

"(But) the figures aren't too concerning for the Q3 GDP figures which we still expect to show a decent bounce.

"We think we will see the UK exit a recession in the Q3 figures, the question is how much of a drag industrial production and manufacturing are on that. But certainly, there's enough evidence there to suggest that services will be enough to pull us out of recession in those Q3 figures."

On trade data:

"What we think we've seen is a bit of correction from the respectable trade deficit that we saw in July. Exports again look to be pretty weak, they slump on the month and any hopes that we'll see a significant improvement over the months ahead are likely to be well overdone because the global backdrop remains pretty tough and exports are going to struggle."


"The industrial output was disappointing but not a major surprise. Overall it was down half a per cent, but I was expecting a bit worse.

"So if you factor that into the likely GDP output for Q3, we'll be looking at a gain of about three quarters of a percent. We ought to know much more when the construction industry data comes out next week.

"As for Q4, it's obviously very early days, but once the lights went out on the closing ceremony of the Olympics, we were looking for a bit of payback.

"There's still time for the growth surveys to improve and get the economy back on track."


"I am not surprised to see a dip in the manufacturing numbers given that we had an exaggerated bounce the previous month. It's heartening to see a little bit of continuing growth in North Sea oil and gas output, which I think is still on a downward trend."

******************************************************* MANUFACTURING OUTPUT AUG JULY (PRV JULY) FCAST Mth-on-mth change in pct -1.1 3.1 (3.2) -0.6 Yr-on-yr change -1.2 -0.7 (-0.5) -0.6 3-mth/3-mth change -0.7 0.1 (0.2) INDUSTRIAL PRODUCTION Mth-on-mth change in pct -0.5 2.8 (2.9) -0.5 Yr-on-yr change -1.2 -0.8 (-0.8) -1.1 3-mth/3-mth change -0.1 UNCH (UNCH) TRADE FIGURES AUG JULY FCAST Goods balance -9.844 -7.337 (-7.149) -8.50 Non-EU goods balance -4.972 -2.929 (-2.877) -4.00 EU 27 goods balance -4.872 -4.408 (-4.272)

- Biggest total goods and services trade deficit since April 2012, second-highest on record

(Reporting by Li-mei Hoang, Peter Schwartzstein and Olesya Dmitracova)

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