The drop in UK industrial production is “a significant dent to hopes” that growth is picking up, say experts, but the weakening of sterling will help reinforce the sector in 2016.
The UK manufacturing sector is in recession with output 0.4 per cent lower in November than in October and 1.2 per cent lower than a year earlier, according to the Office for National Statistics.
Data published today shows the index of production, which includes the electricity, water and oil and gas sectors, also fell 0.7 per cent between October and November.
The new data was labelled “disappointing” by Howard Archer, chief UK and European economist at IHS Global Insight, who says the results are caused by a drop in foreign demand sparked by a strong pound and the global growth slowdown.
He says: “November’s drop in output indicates that there was little respite at the end of a torrid 2015 for manufacturers when they were particularly constrained by weakened foreign demand amid sterling strength and muted global growth.”
However, Archer says a combination of the weaker sterling and very low oil price will benefit the sector in 2016.
He says: “2016 looks like it will be another challenging year for UK manufacturers but they do have some positives to cling on to and notably sterling’s recent softening and very low oil and commodity prices.
“Manufacturers will be particularly pleased to see sterling’s weaker start to 2016 and they will undoubtedly be hoping that the pound softens further, particularly against the euro. In addition, current very low oil and commodity prices increase manufacturers’ ability to price competitively to try and gain business.”
Although the manufacturing data was “unexpected”, JP Morgan Asset Management global market strategist Nandini Ramakrishnan argues UK consumers will drive growth in the sector.
She says: “We are of the belief that one data point does not constitute a trend, but these recent Industrial Production and Purchasing Managers’ Index figures do once again confirm the UK’s reliance on services rather than manufacturing to drive growth.
“The investment implications of the services led UK economy mean: stay active to find service-oriented sectors and pick companies that will benefit from a strong UK consumer base.”
UK GDP growth slowed in the third quarter compared to Q2, increasing by 0.5 per cent, according to the ONS. This compares to a 0.5 per cent rise in Q2.