ONS Rain on Manufacturing Parade
The British manufacturing industry has been on something of a high recently, according to respected industry analysts Markit. Over the last couple of months, we’ve covered their industry reports which have found strong growth in both April and May, along with increased employment in the sector.
It’s been a cause for celebration across the industry, as Brexit fears seemed to be shrugged off thanks to the lower price of British produce.
However, the Office for National Statistics have suggested that the manufacturing and construction sectors performed badly in April, a month in which Markit registered strong growth (a reading of 57, far above the 50 which indicates no growth).
They say that manufacturing rose by just 0.2% in the month, as did industrial production, which missed economists’ forecasts. Meanwhile, construction output dropped by 1.6% and housebuilding took a tumble. Specifically, public residential construction fell 7.9% and private work dropped by 6.9%.
Construction might not seem to have a direct link to manufacturing, but a great many British manufacturing companies rely on a strong construction industry for domestic orders, along with a great many other companies further down the supply chain.
Liz Martins at HSBC was surprised by the finding, pointing to Markit’s PMI surveys, which has suggested April saw an improvement in momentum. “While we still think GDP growth will be stronger in the second quarter than the first quarter’s 0.2pc, these data suggest the improvement may not be as big as indicated”, she said.
The trade deficit shrank in April, improving the outlook for GDP, but this was because weaker domestic demand reduced imports, rather than because of any meaningful improvements in exports, which stayed flat at £49.8 billion in April, whilst imports dipped to £51.9 billion. However, it’s unwise to pay attention to monthly trade deficits, as large orders can greatly sway a months reading.
Howard Archer, chief economic advisor to the EY Item Club, said that the underlying trend remained positive, with exports generally improving. He said: “On a positive note, there are some underlying signs of exports benefiting from the weakened pound and decent global growth as export volumes of traded goods were up 2.1pc in the three months to April compared to the three months to January,”
“There was some relatively good news on the inflation front for the Bank of England to digest ahead of next week’s June meeting of the Monetary Policy Committee. Import prices eased back 0.9pc month-on-month in April as sterling was modestly firmer although they were still up 7.7pc year-on-year.”
Exports are going to be key for PTFE hose fittings suppliers like us going forward, as Brexit squeezes the manufacturing industry. Indeed, any potential levies placed on British trade within Europe could be devastating to the sector.
Meanwhile, the Bank of England published a survey of inflation expectations and found that Britons are not expecting a serious rise in inflation, however, expectations for inflation have crept up slightly, predicted to his 3.3% in five years’ time, up from the 3.2% previously thought – another aspect which could affect UK manufacturing.