By Claire West

Production in both the industrial and manufacturing sectors continued to contribute to UK economic growth in September but there are significant risks ahead as domestic demand fades.

Data this morning revealed a modest month-on-month rise in industrial production in the UK, with an increase in output of 0.4% in September. Forecasts had hoped for a slightly stronger reading of 0.5%. Meanwhile, data from the manufacturing sector was less encouraging, recording output growth of just 0.1% on the month and running against expectations of 0.3%. The figures, although mixed, still suggest that production levels are holding, and with the market focused on the eurozone at present, the pound is continuing to hover near €1.16.

Duncan Higgins, senior analyst at Caxton FX says, “Off the back of strong third quarter GDP and the recent positive PMI readings, these production figures may come as a slight disappointing. However, output levels do remain positive and are consistent with continued growth in activity levels, albeit at a slower pace.”

“The hope is that industry growth continues to support the recovery as we head into the new year but it’s at the risk of weaker domestic demand in face of hefty public spending cuts,” continues Higgins.

With the market shifting its focus to the eurozone, sterling has emerged from the figures broadly unscathed, although it has come of its highs.

“In broad terms it seems that the gloom-and-doom scenario that has weighed on sterling is beginning to lift. The threat of the BoE extending QE is certainly fading and as concerns about the eurozone’s peripheral countries resurface, sterling’s short term prospects are improving,” Higgins adds.

Following the data sterling has come away from its highs but is staying within range of €1.16. Against the dollar, the pound is broadly unchanged on the day, recovering from recent losses to stand near $1.6150.