Sterling has fallen after industrial production missed expectations

Emma Haslett
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Manufacturing and energy supply were both to blame for the fall. (Source: Getty)

The pound took a dive against the dollar in early trading, after official figures showed UK production fell 1.2 per cent in the three months to May.

On a month-on-month basis, production – which measures output in the UK's mining and quarrying, manufacturing, energy, water and waste management industries – fell 0.1 per cent in April, missing economists' expectations of a 0.4 per cent rise.

The drop was driven by the industry's largest sub-sector, manufacturing, which fell 1.1 per cent, as well as energy supply, which dropped 3.5 per cent, the Office for National Statistics (ONS) said. Earlier this week the pound fell after Markit's purchasing managers' index (PMI) showed manufacturing had fallen well short of expectations in June as new orders fell.

Meanwhile, energy suppliers have been hit by record temperatures at the end of 2016 and the first half of 2017.

Read more: British manufacturing order books strongest in almost 30 years

Combined with the news that the UK's trade gap had widened by £2bn in the three months to May, the figures pushed the pound down 0.4 per cent against the dollar, to $1.2915.

"The weak data further dampened the mood among the British manufacturers, already distressed by the deterioration in the June PMI data earlier in the week," said Ipek Ozkardeskaya, senior market analyst at London Capital Group.

"The drawback in the pound suggests that an eventual weakness in the US could keep the [sterling] capped below the critical mid-term resistance of $1.3045, the major 38.2 per cent retracement on post-Brexit sell-off."

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, added that the figures are likely to continue to be disappointing.

"Looking to June, the continuation of warmer-than-usual weather suggests that output in the energy supply sector didn’t recover fully from May’s decline," he said.

"In addition, oil extractors’ estimates of production volumes at the start of the month point to lower output in June, although they had signalled a pickup in May. So even if the official manufacturing data start to narrow the gap with the surveys, overall production likely struggled to rise much in June."

Read more: Should we be worried about UK productivity?

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