Decline in UK factory production adds to woes

Fears over the UK economy intensified Tuesday, sending the London stock market slumping, after British factory production posted a surprise fall in June and the UK trade gap worsened. The unexpectedly poor data from the industrial sector added to the glut of disappointing news on the UK economy, at a time when markets are already in turmoil due to debt crises in the eurozone and the US. The FTSE 100 index in London fell 5.5 per cent after the data was released, and was trading 106 points lower at 4963 at 11:05am, a fall of 2 per cent. Alan Clarke, chief UK economist at Scotia Capital, said: "At the start of the year, two areas of the economy were identified as being the likely engines of growth that would propel a continued recovery in the UK economy manufacturing and net exports. Half way through the year, neither appear to be delivering." Manufacturing output fell by 0.4 per cent in June from the previous month, confounding the City's expectation of a 0.2 per cent increase, and following a rise of 1.8 per cent in May, according to the Office for National Statistics. Car production suffered the biggest fall, of 1.7 per cent, while chemicals, and paper and publishing also shrank in June. Article continues below ING economist James Knightley said: "The worry is that plunging equity markets will hurt business confidence... As a result, the prospect of further action from the Bank of England continues to grow." The data hit any hopes that the recent meagre 0.2 per cent GDP growth figure for the second quarter could be revised up, noted Markit chief economist Chris Williamson.