UK trade and output data show improvement
Official data on manufacturing output and exports in May have brought unexpected good news for the UK economy, though the statistics were flattered by disruptions around the Queen’s jubilee celebrations.
Production output rose 1 per cent between April and May, confounding economists’ expectations it would fall, with manufacturing output up 1.2 per cent.
The trade deficit narrowed by more than expected as exports rose faster than imports.
However, the Office for National Statistics urged caution on the production figures since a bank holiday was moved from May to June to the Queen’s jubilee, creating an extra working day in May that was not accounted for by the ONS’s seasonal adjustments. The ONS said it was not yet possible to quantify the impact this had on the data.
Chris Williamson, an economist at Markit, said the better than expected UK manufacturing and trade numbers for May disguised a deepening downturn of the economy.
Last week, the Bank of England said it would buy another £50bn in gilts in a process known as quantitative easing to try to lift the UK economy from its shallow double-dip recession.
Economists expect industrial production to fall sharply in June as a result of the extra bank holidays for the Jubilee.
Lee Hopley, chief economist at EEF, the manufacturers’ trade association, said: “Gains in both manufacturing production and exports bring a welcome turnround from the recent run of negative economic news,” though she added that the story since the turn of the year “has been one of volatility rather than recovery”.
Comparing the past three months to the previous three, industrial production fell 0.3 per cent and manufacturing output fell 0.2 per cent.
Manufacturing output, which accounts for about 70 per cent of all industrial production, was pushed higher in May by the transport equipment industries and those relating to food, drink and tobacco. Food and drink manufacturers told the ONS that warm weather and increased demand due to the
diamond jubilee contributed to the increase in production.
However, output declined in five manufacturing subsectors, including the pharmaceutical industry where production dropped 3.9 per cent from April.
The trade deficit fell from £4.1bn in April to £2.7bn in May due to a narrowing of the trade in goods deficit from £9.7bn to £8.4bn. The smaller goods deficit reflects a 7.8 per cent rise in exports, which outpaced a small rise in imports.
Exports to the eurozone recovered in May after dropping sharply in April while exports to countries outside Europe shot up 10 per cent.
However, the UK monthly trade data are notoriously volatile and prone to revisions. Mr Williamson said the picture over the past three months together “is one of a worryingly high trade deficit, of a magnitude approaching that seen at the height of the financial crisis in 2008”.