Decline in industrial production due to unusually warm weather in March – ITEM Club
Nida Ali, economic advisor to the EY ITEM Club, comments on today’s industrial production and manufacturing figures:
- Decline in overall production in March is largely weather related
- The rebound in manufacturing in March was not a big surprise given the unexplained drop in February
- We expect the sector to continue growing, but risks from the Eurozone crisis remain significant
“The fall in industrial production in March ties up with the assumptions underpinning the preliminary GDP estimate. The monthly decline in overall production was driven by a sharp fall in the utilities industries, which is clearly related to the warm weather in March. Meanwhile, robust growth in manufacturing output, which comprises a lion's share of overall production, was encouraging.
“Most of the ONS data releases have been unusually volatile in Q1, particularly in February and March, and the industrial production figures are no exception. The sharp drop in manufacturing output in February always looked suspicious so it’s not surprising to have had a rebound. However, even though the figures look more sensible than before, a flat Q1 still doesn’t appear to line up with the business surveys so we could well see upward revisions in the future.
“Although the PMI survey for April reported a slowdown in manufacturing activity, the index still points to increasing output, so we would expect the sector to continue to grow in the coming months. Having said that, UK manufacturers are still at the mercy of the Eurozone crisis and, with renewed uncertainty surrounding Spain and Greece, they remain highly vulnerable to a slowdown in exports.”