Industry | 2010.01.13
Manufacturing output flat amid economy fears
Production fails to grow for second successive month as industry body warns of tough year ahead
Output from Britain\'s recession-hit factories was flat for the second successive month in November, fuelling concerns that the economy remains fragile, as manufacturers warned that it would take until 2011 for industry to return to health.
Official figures published today showed manufacturing production was unchanged in November on the previous month, and down 5.4% on the year.
This chimed with a prediction from industry group the EEF that 2010 would see only a muted bounce-back in the sector, followed by a more solid upturn next year.
The EEF\'s chief economist, Lee Hopley, said: "Last year was a record year for all the wrong reasons and the outlook for the UK economy this year is far from certain, with little momentum behind a recovery until the latter part of the year. While a stronger global economy and weaker exchange [rate] should help pull the UK back to growth, benefiting manufacturers in particular, things could still go wrong."
The Bank of England hopes the cheaper pound will give exporters a boost and help to bring about a "rebalancing" of the economy, away from debt-fuelled consumer spending and towards industry.
Worries about the sustainability of recovery in Britain came as German official figures revealed GDP contracted by 5% in 2009 — its worst performance since 1945. No figures for the fourth quarter were published, but statisticians suggested that after emerging from recession in the second quarter, output stagnated in the final three months of the year, raising the risk of a "double-dip" downturn in Europe\'s largest economy.
Gabriel Stein, of Lombard Street Research, said: "Given a deteriorating global environment, the outlook for German exports is unlikely to be that good, particularly with the euro still strong. This is bad news for Germany and for the entire euro area. A weaker euro could ease some of the pain, but that is all it can do."
In its economic forecast for the next 12 months, the EEF predicted that UK manufacturing output would grow by 1.2%, picking up to 3.4% in 2011, leaving it well below pre-credit crunch levels.
In November, total industrial production – a wider measure that includes mining and energy as well as manufacturing – expanded by a better-than-expected 0.4%, according to the Office for National Statistics, suggesting industry as a whole may have grown in the fourth quarter, contributing to the UK\'s widely expected emergence from recession.
The respected National Institute for Economic and Social Research said feeding the figures into its forecasting model suggested overall economic output, including services as well as industry, probably expanded by 0.3% in the fourth quarter. That would mark the official end of recession, and make 2009 the weakest year for the UK since 1921.
Economists warned that much of November\'s rise in industrial output resulted from a boost to oil and gas extraction, which could prove to be a one-off.
Jonathan Loynes, chief European economist at Capital Economics, said: "The recovery in the manufacturing sector remains fragile. While output in the sector has at least stopped falling, it remains very close to its trough and a huge 14% below its early 2008 peak."
The EEF predicted that the fortunes of different parts of the manufacturing sector would diverge sharply over the coming months. Those dependent on consumer demand in the UK and Europe, such as car-makers, would continue to be hit hard, it said, while others with a stronger export record, such as metals and machines, should fare much better.
"Some sectors that are more exposed to global capital investment – such as mechanical and electrical equipment – will receive an immediate boost from export orders. Others, such as aerospace, defence and construction products, are likely to begin feeling the squeeze from public sector investment cuts," the EEF predicted.
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