Caution urged on manufacturing rise
Tuesday 10 July 2012
A better-than-expected performance by manufacturers shone a ray of hope on the UK economy today but economists warned it may be a false dawn.
The Office for National Statistics (ONS) revealed a 1.2% rise in manufacturing output between April and May, defying expectations of a further deterioration following the shock 0.7% drop the previous month.
Meanwhile, separate figures showed the UK's trade deficit narrowed in May as exports increased at their fastest pace for more than two years, boosting hopes that the sector can help the UK emerge from its double-dip recession.
While the figures were warmly welcomed, economists warned moving a bank holiday from May to June for the Diamond Jubilee may have flattered the figures, which should be treated with caution.
They added that the UK economy is still embroiled in a struggle as domestic demand remains weak and the global economy is slow amid the eurozone debt crisis.
The rise in manufacturing output was helped by a strong performance from food and drink makers, who reported a boost ahead of the Jubilee celebrations.
Blerina Uruci, an economist at Barclays, said manufacturing over the three months to May was still 0.2% down on the previous quarter, indicating weak underlying trends.
She expects manufacturing to fall again in June and to be "subdued" for the second quarter of 2012 as a whole.
Ms Uruci added: "From the performance of the industrial sector in recent quarters, it appears that the hoped-for manufacturing driven recovery is not likely to materialise in the near term.
"Furthermore, the rebalancing of the economy towards export-driven manufacturing seems increasingly unlikely as long as demand from the UK's main trading partners remains subdued."
The improvements in exports were driven by an encouraging growth in trade with countries outside the eurozone, such as the US and China, with products for the car, oil and aircraft industries in strong demand.
Rob Harbron, an economist at the Centre for Economics and Business Research, said: "While today's releases provide some good news for UK exporters, risks remain to the outlook.
"Global growth is slowing, putting downward pressure on export prospects, while underlying fragility in the production industries is likely to remain."
He added that the Bank of England may still need to pump more money into the economy following last week's £50 billion boost to its quantitative easing scheme.
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