Manufacturing output falls – but not as much as feared
MANUFACTURING output fell in June but the figures were not as disappointing as forecast by many analysts.
The seasonally adjusted index of manufacturing fell 4.3% in June 2012 compared to the same month last year and was down 2.9% between May and June.
The Office of National Statistics said moving the second May Bank Holiday and the additional day off for the Jubilee celebrations were likely to have had an impact.
David Kern, chief economist at the British Chambers of Commerce, said: “Longer-term trends in manufacturing are still disappointing. Manufacturers and businesses in other sectors are adjusting to a more difficult reality of weaker growth prospects.
“But British businesses have considerable potential to make progress, and it is down to the government to help them fulfill this. As the government continues with steps to reduce the deficit, and problems in the Eurozone continue, more action is needed to help the economy return to growth.”
The measure of industrial production more broadly mirrored manufacturing with a 4.3% fall on the year.
In manufacturing, wood and paper products saw the biggest fall in output year-on-year followed by metal products. Transport equipment saw the biggest increase at 8.4%.
Nida Ali, economic advisor to the Ernst & Young ITEM Club, said taking into account the additional bank holidays during the period the sharp fall in output had been expected.
However, she said there was still room for optimism as despite the decline, the figures pointed to upward revisions to GDP during the second quarter.
Nevertheless, she added with ongoing weakness in both domestic and export demand, the outlook for the manufacturing sector was little improved.
“These figures have not been adjusted for the unusual pattern of Bank Holidays, so the sharp fall in output was to be expected. In fact, considering that manufacturing output fell by almost 6% between May and June the last time this happened in 2002, the figures could have been much worse. We are likely to see another rebound in July, which should then be followed by a more stable monthly profile,” she said.
“But on a more encouraging note, the figures show that the levels of both manufacturing output and overall production were about 0.5 percentage points higher in Q2 than the estimates used to compile the preliminary GDP release. This alone points to an upward revision to Q2 GDP of 0.1 percentage point.
“However, these figures do little to alter the broader picture. The Eurozone debt crisis is exerting a drag on export demand, while survey data has highlighted weakness in domestic demand as well. Recent business surveys for manufacturing imply further contraction in the sector, so the struggle for UK manufacturers is still far from over.”
Richard Halstead, EEF Midlands Region Director, was another to say June’s sharp fall in output had been expected.
“While the fall didn’t turn out to be quite as steep as indicated by the GDP estimates last month, the data ultimately tell us relatively little about the underlying state of the sector.
“Our feedback suggests that confidence remains fragile, but there are still bright spots to be found in some export markets. The question is whether July’s data will confirm that output was simply displaced or if this is the beginning of a more worrying downward trend,” he said.
