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Manufacturing 'resilience' in May points to strong second quarter results

Published 07/07/2016

Manufacturing profits slipped less than expected in May.
Manufacturing profits slipped less than expected in May.

The UK's manufacturing industry has beaten expectations in May despite activity easing back from a surge in the previous month.

The Office for National Statistics said manufacturing output came in at a better-than-expected fall of 0.5%, dropping down from April's rise of 2.4%, but remaining ahead of a predicted slide of 1.1%.

Economists branded the performance as "resilient", as manufacturing output rose 1.7% in May compared to the same month in 2015.

Activity in the wider industrial production sector also slipped 0.5% month-on-month, after picking up 2.1% in April.

Martin Beck, senior economic advisor to the EY ITEM Club, said the results point towards a stronger performance from the UK economy in the second quarter.

He said: " Following increases of 2.1% and 2.4% in production and manufacturing output respectively in April, May's fall of just 0.5% is a surprisingly good outcome.

"The evidence we have from the official data and the business surveys suggests that even in the event of a further monthly decline in June, manufacturing output is on track to rise by almost 2% in the second quarter.

"With April's strong readings for services and construction output also pointing to solid performances from those sectors, it now looks very likely that second quarter gross domestic product (GDP) growth will come in ahead of the first quarter's outturn of 0.4%."

Allan Monks, economist at banking giant JP Morgan, has revised up his UK GDP forecast amid signs that industrial production could be heading for a " very strong quarter".

He added: " Even assuming the service sector shows a clearer referendum related softening in May/June, and allowing for some payback industrial production in June - we now think second quarter GDP will print closer to 0.5% quarter-on-quarter versus our prior forecast for 0.3% quarter-on-quarter growth."

The update comes after last week's Markit/CIPS UK Manufacturing purchasing managers' index showed the industry had stepped up to a five-month high and broke free of its ''early year sluggishness'' on the run up to the Brexit vote.

The index showed a reading of 52.1 for June, its highest level since January, as it climbed from a revised reading of 50.4 in May.

However, PMI's for the services sector and the construction industry proved more gloomy, with the latter experiencing its worst month in seven years for June.

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