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Weak rise in UK manufacturing blamed on strong pound and Ukraine crisis NIESR revises economic growth down after weak rise in UK manufacturing
(about 4 hours later)
Output from Britain's factories rose by a smaller than expected 0.3% in June and remains more than 7% below its pre-recession peak, according to official figures. One of Britain's leading economic thinktanks has cut its estimate of Britain's growth after news that output from Britain's factories rose by a smaller than expected 0.3% in June.
Although the economy as a whole has now made up the ground lost in the "great recession of 2008-09", data from the Office for National Statistics showed that manufacturing is still struggling. The National Institute for Economic and Social Research (NIESR) said that the most recent data pointed to the economy expanding by 0.6% in the three months to July, down from 0.8% in the three months to June.
NIESR produced its estimate after the Office for National Statistics released figures showing manufacturing lagging well behind the service sector in its ability to recoup ground lost during the "great recession" of 2008-09. The ONS said that output from UK factories remained more than 7% below its pre-recession peak.
Although the economy as a whole has made up the lost ground, UK factories are producing 7.4% less than they were at the time of the pre-recession peak in early 2008.
City analysts blamed the 10% rise in the value of the pound – which makes exports dearer – and rising tension between Russia and the Ukraine for industry's failure to bounce back from a drop in output of more than 1% in May.City analysts blamed the 10% rise in the value of the pound – which makes exports dearer – and rising tension between Russia and the Ukraine for industry's failure to bounce back from a drop in output of more than 1% in May.
James Knightley, economist at ING bank, said there was a disparity between the official figures and survey evidence which suggested a much stronger performance by manufacturing.James Knightley, economist at ING bank, said there was a disparity between the official figures and survey evidence which suggested a much stronger performance by manufacturing.
"In general it is pretty disappointing stuff and highlights the lack of rebalancing away from services to more production-led growth. Nonetheless, given the near-universal strength seen in the manufacturing surveys the true picture remains unclear.""In general it is pretty disappointing stuff and highlights the lack of rebalancing away from services to more production-led growth. Nonetheless, given the near-universal strength seen in the manufacturing surveys the true picture remains unclear."
The ONS said that manufacturing output in the second quarter of 2014 – considered a better guide to the trend than one month's figures – was 0.2% up on the first quarter but 7.4% below its position in the first quarter of 2008, after which the economy started to contract.The ONS said that manufacturing output in the second quarter of 2014 – considered a better guide to the trend than one month's figures – was 0.2% up on the first quarter but 7.4% below its position in the first quarter of 2008, after which the economy started to contract.
Industrial production – which includes mining, water supply and electricity and gas output – was also up by 0.3% between May and June and also up by 0.3% on the quarter. Industrial production, which includes mining, water supply and electricity and gas output, was also up by 0.3% between May and June and also up by 0.3% on the quarter. With North Sea oil and gas output in long-term decline, industrial production is 11.4% below its pre-recession level.
The ONS had pencilled in a quarterly rise of 0.4% in industrial production for its first stab at calculating growth in the second quarter of 2014, but said the slightly smaller increase would not result in a change to its 0.8% estimate.The ONS had pencilled in a quarterly rise of 0.4% in industrial production for its first stab at calculating growth in the second quarter of 2014, but said the slightly smaller increase would not result in a change to its 0.8% estimate.
Howard Archer, an economist at IHS Global Insight, said: "A smaller than expected rebound in manufacturing output in June adds to signs that the sector has recently lost some momentum from robust levels at the start of this year. Tom Lawton, head of manufacturing at accountants and business advisors BDO said: "Whilst we expect that manufacturing will continue a broadly positive trend for the rest of the year, the ONS figures clearly illustrate the significant economic and global headwinds that the sector faces. There continue to be concerns that the UK recovery is unbalanced, Europe remains significantly affected by the financial crisis, banks are not back to full strength and the expected boost in exports to the emerging economies has not gathered pace."
"This is disappointing for hopes that UK growth can be broad based on a sustained basis going forward and less dependent on services sector. Of course, given its size, the services sector will always be the key growth driver." NIESR said that its latest estimate implied an annual growth rate of 3%, with the economy operating well below its potential level of output.
"We expect the MPC to introduce the first interest rate hike in February 2015."