Less concern about industrial production but manufacturing almost certain to contribute negatively to growth in Q4
Nida Ali, economic advisor to the Ernst & Young ITEM Club, comments on today’s Industrial production and manufacturing figures:
Less concern about the sharp monthly drop in industrial production, entirely due to one-off effects
But manufacturing will almost certainly contribute negatively to growth in Q4 and prospects for the sector in the near-term are bleak
“We wouldn't look too much into the sharp monthly drop in industrial production in September, which was almost entirely because of a fall in extraction output, due to a number of oil rigs being shut for maintenance. As such it is just a one-off effect that will probably unwind in October.
“And the downward revision to quarterly industrial production growth from the 1.1% reported in the GDP preliminary release to 0.9% in today's figures shouldn’t be enough to cause a revision to the GDP data on its own.
“But today's figures reveal that the level of manufacturing output ended Q3 someway below the quarterly average, meaning that Q4 already looks like being an uphill battle. Even if output is flat for the next three months, it will be down on the quarter as a whole, and the PMI surveys suggest that output is more than likely to fall, so manufacturing will almost certainly contribute negatively to growth in Q4. Once again we’re faced with relying on the services sector to keep growth out of negative territory.
The Eurozone crisis continues to cast a shadow on the prospects for UK manufacturers, and the near-term outlook for the sector is weak. But assuming that the Eurozone remains intact and drags itself out of recession, we are more optimistic about prospects for UK manufacturers further out.”
Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.