UK sees surprise slump in May factory output

Tuesday 08 July 2014 10.55
UK factory output dropped by 1.3% in May, its biggest fall since January 2013
UK factory output dropped by 1.3% in May, its biggest fall since January 2013

British factory output suffered an unexpected slump in May, according to official data today that raises questions about the pace of the country's recovery. 

Factory output dropped by 1.3% in May, its biggest fall since January 2013 and in sharp contrast to economists' forecasts for a solid 0.4% increase, the Office for National Statistics (ONS) said. 

The decline comes after the sector recorded its strongest growth in nearly four years in the three months to April, and goes against the grain of robust private-sector surveys and a run of more positive surprises from UK data. 

The Bank of England forecast in May that Britain's strong economic growth would start to slow in the second half of this year.

However, more recently Governor Mark Carney said he had seen little sign that this was about to happen. 

The ONS had no specific explanation for the decline, beyond saying that it occurred across a swathe of manufacturing sectors, and also in the water and sewerage industries, which feed into the broader industrial output measure.for the second quarter showed that manufacturers and construction firms reported the strongest domestic sales growth since the survey began in 1989. However the BCC said other measures for exports and investment eased after a very strong start to the year. 

UK manufacturing has further to go to catch up on the deep slump after the 2008 financial crisis. Factory output is 7.2% below its peak, while services sector output is already well above where it was before the crisis.

On the year, factory output was up 3.7% in May, slowing from a 4.3% increase in April. 

Industrial output - which makes up 15% of the economy- dropped by 0.7% on the month, its biggest fall since August 2013, causing annual growth to slow to 2.3%. 

The oil and gas sector, a source of volatility in industrial output, rose by 0.9% in May after some offshore production restarted. Output had dropped by 2.2% in April. 

Britain's robust economic recovery had previously shown increasing signs of spreading beyond housing and consumer-facing sectors, with the biggest rise in business investment in two years during the first three months of this year. 

The Bank of England has said it wants to be sure growth is on a firm basis before it raises interest rates from their record-low 0.5%, something most economists think will happen late this year or early in 2015. 

Today's figures tally with an unexpected slump in German industrial output - though that was in large part due to an unusual timing of German public holidays which caused some factories to suspend production. 

The ONS data contrasts with other readings of British manufacturing. Last week's Markit survey of factory purchasing managers pointed to strong future expansion, with the fastest growth in activity for seven months in June. 

The Confederation of British Industry has also reported strong orders. 

Earlier today, a survey from the British Chambers of Commerce for the second quarter showed that manufacturers and construction firms reported the strongest domestic sales growth since the survey began in 1989. However the BCC said other measures for exports and investment eased after a very strong start to the year. 

UK manufacturing has further to go to catch up on the deep slump after the 2008 financial crisis. Factory output is 7.2% below its peak, while services sector output is already well above where it was before the crisis.