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Thursday 26 May 2016

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Manufacturing output fall sees pound plunge

Published 12/01/2016

Manufacturing output dropped by 1.2% in November compared with the same month in 2014, official figures show
Manufacturing output dropped by 1.2% in November compared with the same month in 2014, official figures show

UK factory output has turned in its worst performance in more than two years, sending the pound to a five-and-a-half-year low against the dollar.

Official figures show manufacturing output dropped by 1.2% in November compared with the same month in 2014 due to falls in machinery production, worse than the 0.8% fall forecast and its joint weakest reading since the middle of 2013. The sector also fell 1.2% in July.

The Office for National Statistics (ONS) added manufacturing output dropped by 0.4% month-on-month in November due to falls in pharmaceutical production - worse than the 0.1% rise economists expected.

Total UK production activity for the sector lifted by 0.9% due to increases in mining and quarrying, but was again below expectations of a 1.7% rise.

The pound fell a cent against the US dollar to just over 1.44, its weakest level since June 2010. Sterling was also a cent lower against the euro at just under 1.33.

The figures come after the closely-watched CIPS/Markit purchasing managers' index (PMI) survey said last week that factory output ended the year by growing at its slowest pace for three months. It gave a reading of 51.9 in December, down from 52.5 in November.

Earlier this month a report from the British Chambers of Commerce showed that manufacturing exports stagnated in late 2015 for the first time since 2009, and export growth from the powerhouse services sector also eased.

IHS chief UK and European economist Howard Archer said the ONS figures were a "significant dent" to hopes that UK economy picked up in the fourth quarter.

Last month, the ONS revealed shock revisions that showed growth of 0.4% in the third quarter to the end of September, down from the initial estimate of 0.5%.

Growth was also revised down to 0.5% for the second quarter to the end of June, from the 0.7% previously recorded.

These revisions mean expansion for the whole of 2015 is likely to have slowed to around 2.2% from nearly 3% in 2014.

This means there is little pressure on the Bank of England to raise interest rates from the rock-bottom low of 0.5%, despite the US Federal Reserve raising rates in America last month for the first time in nearly a decade.

Mr Archer said: "It now looks highly unlikely that industrial production was of any help to gross domestic product (GDP) growth in the fourth quarter of 2015, which is a blow to hopes that GDP growth improved from 0.4% quarter-on-quarter in the third quarter."

Markit chief economist Chris Williamson added: "Producers are having to deal with a toxic combination of a historically strong exchange rate, weak global demand, intensifying competition, notably from the US and continental Europe, as well as growing uncertainty about the outlook at home and abroad.

"None of these factors are like to disappear any time soon, leaving industry facing further hard times in 2016 and the economy worryingly unbalanced."

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