Decline in manufacturing output is serious cause for concern, says ITEM Club
Nida Ali, economic advisor to the EY ITEM Club, comments on today’s industrial production and manufacturing figures
- A very disappointing start to the second quarter, with the monthly decline in manufacturing posing a genuine cause for concern
- Industrial production as a whole held up because of the sharp increase in utilities but the underlying picture looks weak
- These figures do not bode well for growth in Q2, racking up the pressure on the Bank of England to ease monetary policy further
“A very disappointing start to the second quarter. In particular, the monthly decline in manufacturing output is worrying, given that business surveys in April had indicated that output would continue increasing. With the PMI survey for May reporting a further slump in activity, the near-term outlook for the sector is pretty bleak.
“Despite the decline in manufacturing, industrial production remained flat in April, boosted by a sharp increase in output in the utilities industries. This is clearly temporary and likely to unwind next month, painting a very weak underlying picture.
“The figures suggest that the manufacturing sector will be a drag on growth in Q2, which is already expected to be disappointing due to the extra Bank holiday in June. The outlook is also dominated by downside risks. UK manufacturers are at the mercy of the ongoing Eurozone crisis and are highly vulnerable to a further slowdown in exports.
“This latest data will add to the pressure on the Bank of England to ease monetary policy. Last week’s decision is likely to have been finely balanced and it won’t take many more figures like today’s to push them over the edge.”