Surprise fall in manufacturing output dashes GDP hopes

Wednesday, 10 July 2013 08:55

The run of positive economic data that has characterised the start of the Carney era at the Bank of England came to an end today.

UK manufacturing output unexpectedly fell in May, down by 0.8 per cent, the steepest drop since January and teh second consecutive fall, in a surprise to economists, most of whom had predicted a modest increase in output.

The ONS said falls in output in the manufacturing of basic pharmaceutical products and computer, electrical and optical products were the main reasons behind the fall.

The areas that helped to keep the output drop relatively low were food manufacturers and beverages and tobacco makers, who registered a rise of 2.3 per cent in the period.

Official data from the Office for National Statistics (ONS) showed that production output fell by 2.3 per cent between May 2012 and May 2013 and manufacturing output fell by 2.9 per cent over the same period.

The ONS issued a note of caution to accompany the figures, pointing out the fact that a bank holiday in May 2012 was moved to June resulting in an extra working day in May 2012 compared to May 2013.

However, the figures contradict Markit’s manufacturing purchasing managers’ index (PMI) for May which showed a reading of 51.5 which indicates growth. The latest manufacturing PMI from Markit for June showed continued growth, up to 52.5.

The manufacturers' organisation, EEF said that the latest data "cast a bit of a cloud over the positive run of industry data in recent months".

North West regional director David Ost added: "While the ONS data suggest industry's contribution to growth in the second quarter is likely to be limited, there are signs that confidence is returning and growth should start to resume as we move into the second half of the year.

"This needs to be quickly followed by a pick up in investment if the UK is to make any progress towards better balanced growth."

Howard Archer, Chief UK & European Economist at IHS Global Insight said: “The sharp fall in manufacturing output in May is undeniably disappointing, and it is somewhat at odds with generally improved survey evidence. So it seems reasonable to expect that there will have been a significant bounce back in manufacturing output in June.”

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