Decline in production levels raises concerns over GDP growth in Q1 - ITEM Club comments on today's industrial production and manufacturing figures

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

  • Small increase in manufacturing output is encouraging, but economic environment continues to remain tough
  • Decline in production as a whole is more worrying and raises fears about growth in Q1
  • Downside risks still dominate, in particular the Eurozone crisis and the potential for an increase in oil prices

“Today’s data is a real mixed bag. On one hand the small monthly increase in manufacturing output, on top of strong growth in December, is encouraging. It is consistent with the latest business surveys and the situation seems to be stabilising after the recent low in Q4 2011. However, output levels are only back to where they were last summer and the economic environment for UK manufacturers remains tough.

“The decline in production as a whole, driven by a steep fall in the extraction industries, is worrying. Up until now, the data for Q1 has been much firmer and had indicated that the UK would be able to avoid a technical recession. However, these figures renew our fears about economic growth in Q1.

“Downside risks also continue to dominate. In spite of the Greek debt swap getting the go ahead, the Eurozone crisis still casts a shadow over growth prospects. There is also further downside risk from political tensions, which may cause a surge in oil prices.”