Monthly increase in manufacturing output due to bounce-back from supply chain disruptions - ITEM Club - Ernst & Young - United Kingdom

Monthly increase in manufacturing output due to bounce-back from supply chain disruptions - ITEM Club

Nida Ali, economic advisor to the Ernst & Young ITEM Club, comments on today’s industrial production and manufacturing figures:

• Despite the monthly increase in manufacturing output, the underlying picture continues to remain pretty weak
• The manufacturing sector is unlikely to see any sort of pick-up until at least mid-2012
• With evidence of a further weakening in the service sector, the economy seems to be heading for another soft patch in the months ahead

“The monthly increase in manufacturing output is nothing to get too excited about. Given that growth was driven primarily by an increase in output of sub-sectors like transport equipment, the overall increase seems to be a bounce-back from supply chain disruptions caused by the Japanese tsunami. Taking these factors away, the underlying picture for the manufacturing sector still looks pretty weak.

“Evidence from recent PMI data suggests that UK manufacturers are in for a tough winter. Survey data has consistently reported weaker trends in new orders and it is likely that muted demand will force companies to decrease their production levels. The sector may well be a drag on growth in Q4 and we don’t expect to see any serious pick-up until at least mid-2012.

“Knock-on effects of adverse developments in the global economy are clearly being felt on the UK, and the services sector in recent months has weakened further. The economy seems to be heading for another soft patch around the turn of the year and it looks like we may see no growth in GDP in Q4. Much now depends upon how the Eurozone crisis develops; if the policymakers are overtaken by events again it could be enough to tip the UK into recession.”