Manufacturing output in the UK recorded a surprise fall of 1.3% in May, the biggest decline since January 2013.
UK manufacturing output contracted for the first time in six months in May, disrupting a run of “Goldilocks” data that showed the recovery was gathering pace.
Factory output shrank by 1.3pc on a month-on-month basis, according to the Office for National Statistics (ONS), following downwardly revised growth of 0.3pc in April. The figure from the Office for National Statistics (ONS) was much weaker than economists’ forecasts of an increase of 0.4%.
Manufacturing data and surveys so far this year have indicated that the sector is growing robustly. The wider measure of industrial output also fell in May, the ONS figures showed, dropping by 0.7%. Compared with a year earlier, manufacturing output was up 3.7% in May, down from April’s increase of 4.3%, while annual growth in industrial output slowed to 2.3% from 2.9%.
May’s decline in output echoes a similar stutter in German industrial production, which fell 1.8% in May, figures released on Monday showed.
Most economists said the sector was still likely to have made a healthy contribution to UK growth in the second quarter. “We had five consecutive monthly increases in April, which was phenomenal,” said James Carrick, an economist at Legal and General. “We didn’t quite make it six, but the analogy I would give is that if you think about the qualifying stages for the World Cup, if you win five matches and you lose one, you’re still top of the league.”
Others warned that “the bell is tolling for the UK’s economic ‘goldilocks’ period” of strong growth and low inflation. Marc Ostwald, a strategist at ADM Investor Services, said the capacity constraints and concerns about a premature rate hike highlighted in the BCC survey acted “as a timely warning that although growth is stable, challenges facing our recovery still remain.
“One has to wonder whether the bell is tolling for the UK’s economic “goldilocks” period, and by extension for the [pound’s] strength.”
‘Puzzling’
David Tinsley, UK economist at BNP Paribas, described the results as a “heavy dose of reality” after a run of upbeat economic data.
“It is quite possible that the fall today reflects some erratic/seasonal influences,” Mr Tinsley said.
“It is noteworthy that German industrial production was similarly surprisingly weak yesterday. It could be production plans were affected by the relative lateness of Easter.”
Jeremy Cook, chief economist at currency company, World First, said the results were “puzzling”.
“This is the first decline in six months for UK factory output and calls into question just how strong the balancing act of UK growth really is.”
In May, the Bank of England predicted that the UK’s economic growth would begin to slow in the second half of 2014, but governor Mark Carney said recently there were few signs of this happening.
The pound fell by half a cent to $1.7085 against the dollar on Tuesday following the surprise fall, which saw output contract in ten out of thirteen manufacturing subsectors. On an annual basis, the UK’s industrial and manufacturing sectors have expanded by 2.3pc and 3.7pc respectively.
[Telegraph and BBC]