Is industry’s stumble a cause for concern?

Posted on 19 Jan 2015 by Jonny Williamson

Recent ONS figures provided a shock for some, as UK manufacturing output dropped rather than increased as expected. Director of James Briggs Ltd (one of Europe’s largest manufacturers of aerosol and consumer chemicals), Max Bass asks whether this stumble, in an otherwise consistent sector recovery, is a major cause for concern.

Max Bass, director, James Briggs Ltd.
Max Bass, director, James Briggs Ltd.

Regardless of industry, a market posting negative figures doesn’t make for good reading. However, there is no need to press the panic button. Ever since we started back on a positive economic trajectory in 2013, the manufacturing sector – along with many others – has been right to tread cautiously.

As with all markets though, a stumble does not inevitably lead to a fall, and while output fell short of the increase expected between September and October, more positive news has flowed through in the interim period.

One set of figures worth considering are those in the CBI’s final quarterly survey of the year, which found that October’s drop came in a window where UK order books hit a four-month high and a positive balance of 5%.

A positive outlook is further encouraged when you take into account Markit’s latest Purchasing Managers’ Index (PMI), which paints an upbeat picture heading into 2015. The PMI rose from 53.2 to 53.5 – anything above 50 would imply expansion – against predictions that it would slip to 53.0.

Perhaps the most important thing to take from these figures is that domestic demand remains resilient to the persistent malaise in the export market, which is hampering growth. We have seen Germany join Italy and France on the list of EU countries whose manufacturing sectors contracted in the past few months. Further afield, China’s growth also slowed in November’s figures whereas the US market bucked the trend to report a 1.1% surge.

Eurozone demand clearly remains low, and that will continue to have an impact on UK figures into 2015. However, the ONS was keen to point out that its stats showed no sign that export levels for November were weaker than normal.

October’s anomalous posting has mostly been attributed to a 4.5% drop in the major computer and electronics sector but, most importantly, serves as a timely reminder that we mustn’t rest on our laurels if the year ahead is to be a positive one.

For the time being, UK manufacturing won’t be able to rely on the export market to boost its coffers, so much will continue to depend on domestic demand. Policymakers are already reflecting that, with the Bank of England signalling that it will keep interest rates at 0.5% – a figure we expect to remain in place well into 2015.

The current situation remains delicate, and manufacturers will continue to be cautious until greener shoots begin to sprout in the Eurozone. The current low price of oil will go some way to easing the reliance on domestic consumers, meaning that trouble in the EU shouldn’t be enough to put off British optimism. While market drops remain anomalous, it should be a happy and prosperous New Year.