Manufacturing enters 2016 in a state of near-stagnation, but borrowing strengthens – EY ITEM Club
By Martin Beck, senior economic advisor to the EY ITEM Club:
December's CIPS manufacturing survey disappointed with its lowest reading in four months. As the sector is struggling to eke out growth, it looks like manufacturers are unlikely to have made more than a marginal contribution to GDP growth in the last quarter of the year.
The weakening in manufacturing activity was broad-based, with the consumer, intermediate and investment goods sub-sectors all seeing a deceleration in growth. Meanwhile, the rise in export orders was the weakest since September. The boost to manufacturers from the drop in the sterling price of oil, down almost 13% in December on the previous month, is struggling against the headwinds of sterling's previous strength and problems in the world economy.
Looking ahead manufacturing looks set to play firmly second fiddle to services in driving growth in 2016. However, the weakening in the pound since the autumn, as well as a modest pick-up in global activity, should assist manufacturers selling abroad or competing with imports.
That prediction is consistent with the household borrowing numbers for November. These showed that rising demand for house purchases is continuing to be reflected in a growing appetite for mortgages, which are now at their highest since August. Moreover, net mortgage lending of £3.9bn in November was the highest since April 2008 and took annual growth above 3% for the second month in a row. And the annual rise in consumer credit ran at 8.3%, a rate reminiscent of the credit-fuelled era of the mid-2000s.
Growth in total household lending remains a long way from the rises seen in that period. But a further acceleration in lending may well make 2016 the year when the Financial Policy Committee really makes its presence felt.