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Economy in Brief

UK Industrial Production Falls in August as Oil Production Lags
by Carol Stone October 6, 2005

UK industrial production sank in August by 0.9% from July, mainly reflecting a further plunge in oil and gas extraction, but also including decreases in several manufacturing industries. Forecasters had expected a modest increase, perhaps thinking that the oil and gas sector would rebound after two successive sizable decreases.

Oil and gas extraction is subject to two trends, a long-run decrease as North Sea reserves dwindle, and a short-run maintenance shutdown that took longer than normal this summer. Regarding the first, output of North Sea petroleum and gas has been ratcheting lower since late 1999. The industrial production index for oil and gas extraction averaged 81.5 (index, 2002=100) during the first half of this year, compared with a peak of about 112.0 in early 2000, a total reduction of roughly 27.5%. Then each year, output is also reduced for maintenance. This slowdown occurs in late spring and summer, but the exact timing varies. Analysts apparently believed output would pick up quickly in August, although previous year's patterns indicate that it can remain relatively sluggish even through September. That said, the current drop has been very steep -- and it probably isn't helping the tight world supply situation.

Among manufacturing industries, there was a mix of ups and downs in August production. Food, textiles and paper products weakened, but furniture, chemicals and electronics gained. Notably, while production of crude oil and gas at the well have declined, refining activity has been firm in recent months. At least one press report indicated concern that oil producers weren't increasing supply in the face of rising prices. Perhaps not yet, but refiners appear to have been doing so.

United Kingdom:
% Chg*
Aug 2005 July 2005 June 2005 Year Ago 2004 2003 2002
Industrial Production -0.9 -0.4 -0.2 -0.5 0.7 -0.5 -2.5
Oil & Gas Extraction -7.7 -4.0 -4.0 -19.4 -8.4 -5.6 -1.2
Manufacturing -0.2 0.1 0.2 1.9 1.8 0.1 -3.1
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