U.K. Factory Production Unexpectedly Jumped in June by 0.4%

U.K. manufacturing unexpectedly jumped in June by the most in 1 1/2 years as factories raised production of cars and computers, evidence the recession is easing.

Output rose 0.4 percent from the previous month, the Office for National Statistics said today in London. Economists predicted a 0.1 percent drop, according to the median of 25 forecasts in a Bloomberg News survey. Factory production is down 11.7 percent from a year ago.

The Bank of England will decide tomorrow whether to expand its 125 billion-pound ($212 billion) money-printing program as policy makers assess if the economy has received enough stimulus to entrench a recovery. Reports today showed consumer confidence rose and house prices rebounded in July, and a factory survey released this week showed growth for the first time in a year.

“Things are probably stabilizing, though manufacturers are still in a fragile position,” said Howard Archer, an economist at IHS Global Insight in London. “It’s going to be an exceptionally close call on whether to extend the asset purchase program.”

Of the 13 categories of manufacturing, nine rose on the month, three fell and one was unchanged, the statistics office said. Production of motor vehicles led the increase, with a 13.5 percent gain, followed by office equipment and computers.

Pound Decline
Business Secretary Peter Mandelson said July 28 the pound’s decline over the past year is helping the economy return to growth. The U.K. currency is down 11 percent in the past 12 months against a basket of currencies from the U.K.’s major trading partners. The pound traded close to a nine-month high against the dollar today at $1.6917 as of 8:51 a.m. in London.

Glasgow, Scotland-based Weir Group Plc, the world’s biggest maker of pumps for the mining industry, said yesterday full-year earnings will be at the top end of its own estimates as currency movements boost sales.

The government has established a so-called scrappage program to encourage consumers to trade in old motor vehicles in return for a 2,000-pound subsidy for the purchase of new ones.

Motor vehicle production has dropped 42.8 percent in the second quarter from a year earlier after the recession savaged demand for cars, today’s figures showed.

GKN Plc, the U.K. maker of car parts for BMW and aircraft components for Airbus SAS, said yesterday it will cut 1,100 more jobs in the next 12 months and said it’s looking at further reductions to bolster earnings as auto sales decline.

Factory Survey
Survey evidence suggests manufacturing may strengthen further. A gauge of factory output by Markit and the Chartered Institute of Purchasing and Supply increased to 50.8 last month from 47.4 in June. Readings above 50 indicate expansion.

Overall industrial production, which includes mining, quarrying, utilities, oil and gas, rose 0.5 percent on the month in June, the most since October 2007, the statistics office said today. On the year, it fell 11.1 percent.

The economy may also be strengthening in other industries. House prices increased 1.1 percent on the month, Lloyds Banking Group Plc’s Halifax division said today. Consumer confidence rose 1 point last month to 60, the highest level in more than a year, Nationwide Building Society said.

Central bank policy makers will announce their decision on whether to expand the bond-purchase plan at noon tomorrow in London. Twenty-one of 44 economists in a Bloomberg News survey said the bank won’t spend more, while the remainder said it will spend at least the final 25 billion pounds authorized by Chancellor of the Exchequer Alistair Darling.