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UK Industrial Activity Surges in Year to November - Lead by Manufacturing

The industrial sector remains in rude health and is now expected to add meaningfully to fourth-quarter GDP growth.

Industrial activity rose notably across the UK for the year to the end of October, lead by a sharp pickup in manufacturing and double digit gains in output across the mining and quarrying segment, according to Office for National Statistics data.

Industrial output rose by 3.6% in the recent year, faster than the 3.5% consensus forecast from economists and up from the 2.5% growth seen in the previous year.

Manufacturing output, the main drive of broader industrial production, rose by 3.9%, which is in-line with economist estimates and up from the 2.7% growth seen in the previous year.

Expansion across both manufacturing and the broader industrial segment moderated at touch in October, when compared with the result of September 2017, which is partly the result of both categories also having seen high rates of growth during earlier months.

However, also on the subject of October's moderation, the ONS notes a large fall in output from energy suppliers that it says is the result of "unseasonably warm temperatures".

"The three-month industrial production growth rate remained at a still-strong 1.1%, suggesting that the sector is still on track to provide solid support to growth in Q4," says Ruth Gregory, an economist at Capital Economics.

Separately on Friday, the Office for National Statistics released the latest measure of construction output, which fell -1.7% during the recent month. 

Production in the construction sector has now fallen in six of the last nine months, according to Capital Economics, with the industry suffering from a slowdown in commercial construction and civil engineering.

Further, on Friday, the Office for National Statistics released its latest trade balance data, which describes the difference between the monetary value of goods and services that are imported and exported.

This is important data for the Pound as it provides insight into real-world demand for the British currency.

A rise in exports suggests increasing demand for the Pound, while a rise in imports would suggest increasing downward pressure on the Pound as domestic companies are forced to sell it and buy foreign currency to finance their purchases.

The total goods trade deficit, which is the important figure for markets, narrowed to -£10.78 billion during the three months to the end of October.

This initially appeared an improvement on the earlier deficit of -£11.3 billion, although concurrent with the latest number, the ONS revised its estimate of the earlier deficit downward. 

Last month's quarterly deficit figure is restated from -£11.3 billion to -£10.45 billion and, as a result, the recent trade-balance-trend remains negative, although only just.

The data, normally of significance for the Pound, was sidelined this Friday by recent developments in the Brexit negotiations.

Sterling has risen strongly against its G10 rivals overnight and into the morning session after Prime Minister Theresa May reached an agreement with Brussels’ officials. 

The accord covers the rights of EU citizens in the UK after Brexit, a “divorce bill” and the handling of the Northern Irish border. It should enable Brexit negotiations to progress onto the subjects of trade and transition following the European Council meeting of December 14. 

Moving talks along is seen as key if London is to avoid an early exodus of financial services firms from the City. Many expect that some will eventually shift some parts of their operations, and jobs, back to Europe although a "transition agreement" is key for such a process to be carried out in an orderly manner. 

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