Industrial production sees surprise surge in August but  longer term trend for sector remains soft – EY ITEM Club

Martin Beck, senior economic advisor to the EY ITEM Club, comments on today's Index of Production figures:

"August bucked what had been a gloomy trend in the production sector, with rises in both industrial and manufacturing output. The former increased by 1%, which was the strongest monthly rise since July 2012. On an annual basis, growth increased from 0.6% in July to 1.9%, a 16-month high.

"However August's rise in manufacturing output only partly compensated for July's drop and still left the sector contracting on an annual basis for the second month in a row. And despite the healthy numbers for the month, there is good reason to believe that a positive trend might not be sustained.

"For one, base effects were at work in flattering growth in August. Major maintenance shutdowns in a number of oil and gas terminals had hampered production in August 2014, boosting annual growth a year later. And the rise in vehicle production appears to have been spurred by similar factors, with anecdotal evidence suggesting that a contributor to the increase was the effect of some earlier than usual factory summer shutdowns in July.

"Meanwhile, producers are still battling the effects of a sluggish world economy and the strong pound. Recent evidence from the Bank of England Agents' survey suggests that domestic demand for manufactured goods may be weakening. So Q3 is likely to have delivered a soft result for the 'makers'. In the three months to August, output rose by only 0.1%, a performance that is unlikely to be significantly bettered when we have full data for June to September."

Manufacturing sparks (PD)

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