Markit expert comments on the UK industrial production data
Expert from Markit Chris Williamson comments on the UK industrial production data
“Output of the UK’s manufacturing economy rebounded in August, but the sector appears to be stuck in a soft patch of stagnation at best, with few signs of any imminent improvement to the underlying trend.
“Industrial production rose 1.0% in August, smashing expectations of a mere 0.3% rise and pointing to a strong rebound after a 0.3% drop in July. The revival was in part due to volatile oil and gas production, however, with factories reporting a more subdued recovery. Manufacturing output was up 0.5% in August, failing to fully make up for a 0.7% drop in July, which had in turn been largely blamed on early summer shutdowns at car plants.
“Over the third quarter so far, manufacturing output is running 0.7% below the level seen in the second quarter, extending the sector’s decline to suggest a deepening recession. Manufacturing output fell 0.5% in the second quarter, according to the ONS data.
“Business survey data indicate that the malaise persisted into September. The Markit/CIPS Manufacturing PMI edged lower to 51.5 from 51.6 in August, the second-weakest reading seen over the past two-and-a-half years. However, the PMI does not indicate a downturn of the magnitude signalled by the recent official data (see chart), suggesting the ONS numbers have been more affected by temporary one-off factors such as the car factory shut downs, and that the underlying trend is probably one of stagnation rather than recession. However, even a stalling of the sector is clearly disappointing news and will worry policymakers as they mull over the economy’s ability to withstand higher interest rates.
“Manufacturing is struggling against the headwind of weaker global demand, which intensified in September. Worldwide business surveys showed global trade flows falling at the fastest rate for over two years, with emerging markets contracting at the steepest pace since the height of the global financial crisis in early 2009. At the same time, companies have reported that domestic consumers are showing signs of being more cautious with their spending and business investment in plant and machinery has stalled.”