Industrial output rise suggests momentum for UK economic growth

Sunday, 12 May 2013 08:24

By Ben Salisbury

Industrial production in the UK rise by 0.7 per cent in March compared to February in a further indication that vital parts of the economy are improving.

With strong data from the services sector in April and an improved set of purchasing manager index (PMI) reports for the manufacturing and construction sectors, the data suggests the UK economy can kick-on from the 0.3 per cent growth seen in the first quarter of 2013.

The Office for National Statistics (ONS) said the rise in output was fuelled by a strong performance by the manufacturing sector where output rose by 1.1 per cent and an improved performance in oil and gas output as demand increased due to the long, cold winter.

The ONS said firms increased the production of basic materials and overseas demand increased for UK equipment and machinery helped by the weaker pound that looks to be helping UK exports.

The increase was well above the predictions of most economists with the consensus being that the sector would grow by 0.2 per cent.

Howard Archer, chief UK economist at IHS Global Insight, said: “Industrial production in March provided another upward surprise on the UK economy; this has been an encouraging feature over the last couple of weeks with better than expected GDP growth of 0.3% quarter-on-quarter in the first quarter and an improved set of purchasing managers’ surveys for April relating to services, manufacturing and construction activity.

“There are signs that UK economic activity may at last be gaining a firmer footing, although the economy is far from out of the woods.”

The figures mean that on a quarterly basis industrial output grew by 0.2 per cent, though manufacturing was still down by 0.3 per cent on the quarter and by 1.4 per cent on an annual basis. The annual decline is the lowest since August 2012.

The ONS said all of the main sectors were lower than a year ago except electricity, gas steam and air conditioning which increased by 2.4 per cent on the month thanks to the boost in demand that came from the coldest March since 1962.

This was partially offset by a further fall in output from North Sea oil where output fell by 2.0 per cent in March.

The biggest contribution overall came from mining and quarrying which increased by 4.0 per cent after a weak final quarter of 2012 when some fields were closed for extended maintenance.

Despite the strong performance of the sector, analysts said that industrial output still faces pressure from a weak eurozone and falling demand from emerging nations such as India and Brazil.

The estimate of the contribution of industrial output to the first quarter GDP figures was also 0.2 per cent which means this won’t be revised down when the second estimate of GDP is published by the ONS later in May.

Lee Hopley, chief economist at the EEF manufacturers' organisation, said: "Manufacturing looks to have had another good month in March with the data pointing to encouraging gains across the board, with almost all sectors posting some growth and on-going strength in transport and electrical equipment sectors."

The industrial sector accounts for 16 per cent of the overall UK economy. The 0.3 per cent increase in GDP in the first quarter was driven by an improved performance from the dominant services sector which accounts for 77 per cent of the UK economy.


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