UK May industrial production corrects lower after April’s surge

UK industrial production declined 0.5 pct m/m in May, after seeing a 2.1 pct m/m surge in April. The decline was modest and better that expectations for a deeper contraction of 1 pct. Year-on-year industrial production rose 1.4 pct, weaker than the 2.2 pct growth seen in April, which was revised up from an earlier estimate of 1.6 pct. Economists had expected year-on-year growth of just 0.5 per cent.

"Looking ahead, the weakening in the sterling effective exchange rate since late 2015, and especially in the context of the 11 percent decline since the EU referendum, should presage some pick up in manufacturing output in the coming months. Nevertheless, GDP growth in Q2 and the prospects for its resilience beyond are likely to remain overwhelmingly services driven,” said Lloyds bank in a report.

Manufacturing – the largest component of production fell 0.5 pct m/m in May, down from an impressive 2.4 pct rise in April and again more moderate than the 1.2 pct drop anticipated. Year-on-year manufacturing production rose an impressive 1.7 pct, the strongest since late 2014. It is only the second month of expansion in more than a year and compared to a 1.5 pct rise in April and was better than the 0.4 pct rise expected.

ONS noted that throughout the previous 12 months, manufacturing – the largest component of production – experienced alternating periods of expansion and contraction which have resulted in current manufacturing levels being 1.7 percent higher than those recorded in May 2015

“This adds to the list of robust figures that we have seen for Q2 which suggest that, contrary to fears that GDP growth might stall in Q2 ahead of the referendum, we may actually see an improvement” on the first quarter, when gross domestic product grew by 0.4 percent. At the moment, I’m minded to go for 0.5 percent to 0.6 percent quarter on quarter,” said Alan Clarke, economist at Scotiabank in London.