Bad news for British Manufacturing today as official data from the Office of National Statistics shows that manufacturing output fell in July at the fastest pace in a year.
The news confirms earlier signs that factories took an instant hit after the vote to leave the European Union was confirmed – a vote which saw billions wiped off the value of the stock market. Overall, manufacturing output fell 0.9%, a steep rise from the 0.2% drop in June and far ahead of the 0.4% drop predicted by economists for July.
The difference between this survey and others which have previously been reported is that this one, commissioned by the ONS, looks solely at manufacturing following the Brexit vote. Indeed, data for July wasn’t as bad as it could have been, having been bolstered by excellent performance in gas and oil production in the UK.
The data already analysed for August by Markit showed that whilst output for July plunged, it rebounded sharply in August as Brexit shock faded quicker than anticipated, staging one of the best recoveries Markit have ever seen.
However, one of Markit’s main assertions that the UK manufacturing industry benefitted heavily from the weakened pound is directly refuted by the ONS. They claim that there was no sign of manufactueres getting an immediate boost from the fall of sterling’s value, because contracts are usually slow to respond to currency fluctuations.
The news that manufacturing output took a hit in July has sent the value of the pound down from its seven week high, dropping to $1.34. That’s a change of -0.25%. Nevertheless, the FTSE 100 traded upwards for the first time in three sessions after the output news was released, climbing a modest 0.03%.
With industrial output on the rise thanks to oil and a strong manufacturing recovery in August, you’d be forgiven for expecting GDP growth. However, according to Samuel Tombs of Pantheon Macroeconomics has said that it’s still up in the air whether the UK’s Q3 is in decline or not. He said: "The rise in production entirely reflected a 4.7pc month-to-month jump in mining and quarrying output, which is extremely volatile. Manufacturing output fell 0.9pc month-to-month, its third successive fall, while output in the energy and water supply sectors rose by 0.4pc and 0.7pc respectively.
Production in July was 0.1pc below its Q2 average, so we can’t rule out industry dragging on GDP growth in Q3. Production likely fell back in August, as mean-reversion in mining and quarrying probably offset the pick-up in manufacturing output signalled by the PMI last week. With surveys pointing to a slump in construction output and a sharp slowdown in growth in services output, we still can’t rule out a decline in GDP in Q3 at this stage."
Of course, this is all irrelevant for the many manufacturing businesses like ours who produce things like 150 BSP pipe fittings who are interested in what happens when we leave the EU fully. Trade deals are yet to be struck and we’re still none the wiser as to what our future might look like. In the medium and long term, that’s what’s important to the manufacturing industry.