UK manufacturing rebounds but GDP boost unlikely

UK manufacturing enjoyed a rebound in August but given the weak underlying trends the rise is unlikely to boost overall third quarter economic growth.

Official numbers from the Office for National Statistics shows that manufacturing output bounced back by 0.5 per cent in August after enduring a sharp drop of 0.7 per cent in July. The primary driver of the rise was a marked boost in car production.

Howard Archer, chief UK and European economist at research hub IHS Global Insight, says that the improved figures fail to hide “the underlying sluggishness of the sector”.

This was evident in output actually being down 0.8 per cent year-on-year over the month and down by 0.9 per cent in the three months to August, compared to the previous three months to May.

However, there was some relief for third quarter growth hopes as industrial production surged by a stronger-than-expected 1 per cent month-on-month, chiefly as a result of the better performance across car makers.

Furthermore there was a sharp increase in oil and gas extraction, which was helped by fewer maintenance shutdowns in the North Sea this year.

Archer says that while August’s rebound in industrial production slightly dilutes concern over the economy’s third quarter performance, it still looks likely that GDP growth slowed to 0.5 per cent quarter-on-quarter from the 0.7 per cent achieved in the previous three months.  

He says: “Weakened manufacturing activity is worrying for hopes that UK growth can become more balanced and less dependent on the services sector and consumer spending.

“The Bank of England is likely to take some comfort from August’s rebound in industrial production but it will be concerned by the underlying weakness of manufacturing. The data is unlikely to hugely change market belief that the BoE will not be raising interest rates before late-2016, although we believe a move in the first half of the year is still very likely and would not rule out a move in February.”