Tough winter in prospect for UK manufacturers - ITEM Club

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Andrew Goodwin, senior economic advisor to the EY ITEM Club, comments on today’s industrial production and manufacturing output figures

  • August’s decline in manufacturing output is disappointing but not surprising given recent survey results
  • The surveys suggest that the orders pipeline is weak so manufacturers will continue to struggle in the next few months
  • Q3 GDP growth should be reasonable, but Q4 looks less secure

“The monthly decline in manufacturing output is disappointing but not entirely surprising given the sharp deterioration in the survey data that we had seen in August. It’s clear that the manufacturing sector is struggling at the moment, with the orders pipeline very weak, both domestically and latterly from abroad. That weak orders pipeline tells us that there is a tough winter in prospect and even on a best-case scenario it’s likely to be well into next year before manufacturers enjoy any sort of pickup.

“Admittedly the wider IP measure looks a little stronger, but the extraction and utilities sectors can be very volatile from month-to-month so there’s little to get excited about there.

“For Q3 as a whole it looks like we’ll see marginal growth in manufacturing output. Fortunately the services side looks stronger, which should ensure reasonable GDP growth of around 0.4%. But much of that will come from the unwinding of the temporary factors which dragged down growth in Q2 and there doesn’t seem to be much underlying strength, so we’re likely to see a further soft patch around the turn of the year.

“This is another in a line of weak indicators which explains why the MPC thought it necessary to make its move last week. That there was a need to take action is not in doubt, but we’re not convinced that the prescription of more QE was the right medicine to correct this particular problem. If the outlook worsens still further then the government and the Bank may have to come up with more creative solutions to the problems.”

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