Output falls short of forecasts

Posted on 7 Jul 2009 by The Manufacturer

Manufacturing output fell by half a per cent between April and May, according to the Office for National Statistics (ONS), despite forecasts of a 0.2 per cent rise.

The drop came as a disappointment to those who had hoped the forecasted figures would represent one of the first concrete indicators that the downturn had peaked and recovery was imminent. The unexpected fall is being attributed to the paper, printing and publishing industries which dropped 2 per cent between April and May, despite doing well for the quarter.

For the quarter to the end of May, manufacturing output across all sub-sectors decreased by 1.2 per cent compared with the three months to February 2009 and was 13.1 per cent lower against the same three-month period a year ago.

Four out of 13 sub-sectors did experience a rise in over the quarter though, with the chemicals and man-made fibres industries (+2.2%) and the paper, printing and publishing industries (+1.4%) the best performers.

The fact that the drop in output was not severe was enough to retain some degree of optimism that Britain could still be on the verge of pulling its way out of recession, yet most industry analysts advised an air of caution.

“It shows that we must not take the recovery for granted,” said Stephen Radley, chief economist at EEF, the manufacturers’ organisation. “Conditions in domestic and export markets remain tough and the focus for the government and the Bank of England must remain on fighting the recession.”

“Maybe we were getting a bit optimistic,” conceded Brian Hilliard, economist at Societe Generale.

And these cautious sentiments were also voiced recently by Radley’s colleague, Lee Hopley, who, following last week’s positive Purchasing Managers’ Index reading from CIPS/Markit, which reported the first monthly rise in output in over a year, said: “Whilst the rise in the manufacturing activity index is encouraging and in line with evidence we have passed through the worst of the storm, it comes after months of significant falls.

“We must be cautious about calling the first increase in output in 15 months the start of a sustained upswing for manufacturing, as the road to recovery is likely to be a long and uncertain one.”

Back on today’s figures though, Graeme Allinson, head of manufacturing, tansport and logistics at Barclays Commercial Bank, said they “reinforce the hope that the destocking which held the sector back in the first quarter will now give way to a re-invigorated supply chain and a pick-up in overall production levels.”

He added: “Globally, Sterling remains competitive and will act as a supporting stimulus as manufacturing once again finds its feet. The increase in both production levels and demand in India and China are a good indication of international recovery, and this can only be good for UK manufacturers.”