Sharp fall in manufacturing output was expected, due to extra bank holidays in June – ITEM Club

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

  • Due to the two extra Bank holidays in June, the sharp fall in output was expected
  • In fact, despite the decline, the release points to upward revisions to GDP in the second quarter
  • But with ongoing weakness in both domestic and export demand, the outlook for the manufacturing sector is little improved

“These figures have not been adjusted for the unusual pattern of Bank holidays, so the sharp fall in output was to be expected. In fact, considering that manufacturing output fell by almost 6% between May and June the last time this happened in 2002, today's figures could have been much worse. We are likely to see another rebound in July, which should then be followed by a more stable monthly profile.
 
“But on a more encouraging note, the figures show that the levels of both manufacturing output and overall production were about 0.5 percentage points higher in Q2 than the estimates used to compile the preliminary GDP release. This alone points to an upward revision to Q2 GDP of 0.1 percentage point.
 
“However, these figures do little to alter the broader picture. The Eurozone debt crisis is exerting a drag on export demand, while survey data has highlighted weakness in domestic demand as well. Recent business surveys for manufacturing imply further contraction in the sector, so the struggle for UK manufacturers is still far from over.”