6th August 2015
UK growth prospects have been hit with a setback as manufacturing output only managed to edge up 0.2% month-on-month in June after pretty steep retreat in May according to official data.
Consequently, manufacturing output fell 0.3% quarter-on-quarter between April and the end of June. But the lacklustre growth still showed a marked improvement on the previous month’s contraction of 0.6% and 0.4% in April.
Commentators say that manufacturers are being particularly constrained by weakened foreign orders, a consequence of sterling’s strength against the euro. In fact, sterling has hit a new seven-and-a- half high on its trade-weighted index this week.
Looking at June’s fall, Howard Archer, chief UK and European economist at IHS Global Insight said: “Lacklustre manufacturing activity is worrying for hopes that UK growth can become more balanced and less dependent on the services sector and consumer spending.”
However he noted: “Oil and gas extraction was still up 10.7% quarter-on-quarter in the second quarter, which was very possibly boosted by tax changes in the March budget. Some recovery in oil prices from their January lows through to May could also have been a factor. Of course, oil prices have since fallen back anew, and it remains to be seen what impact this has on future oil and gas extraction in the third quarter and beyond.”
But Archer added that on the domestic demand side, the outlook for manufacturers looks most promising on the consumer goods front given improved purchasing power and elevated consumer confidence. “Current overall signs that housing market activity is improving is also encouraging for demand for household goods and furnishings,” noted Archer.
“Manufacturers will be hoping that the healthy rebound in GDP expansion in the second quarter and a seemingly decent growth outlook will encourage businesses to invest, thereby lifting demand for capital goods. On the export front, manufacturers will be concerned about the ongoing strength of sterling against the euro, but they will be hoping that the recent deal for Greece helps the Eurozone’s current modest upturn to gain traction.”