UK industrial production declines in February, service-sector likely to continue driving economy

UK industrial production reversed January’s gains, declining 0.3% m/m in February. Consensus expectations were for a slight growth of 0.1%. In January, industrial production had moderately recovered; growing 0.2% m/m. Manufacturing output performed quite poorly, contracting 1.1% m/m, much below expectations.  Mining output flattered the headline production data, growing 3.6%. This greatly shows a rebound in oil and gas extraction after three straight monthly drops.

Manufacturing surveys, mainly the PMI, weakened in the first quarter from their levels in 2015. But the PMI average of 51.6 in Q1 did not indicate the noticeable contraction in the official data.

“In terms of the broader outlook for UK GDP, today’s figures are, on their own, not sufficiently weak to change the likelihood of 0.5% q/q GDP growth in 2016 Q1, given still-robust outturns in the services sector”, says Lloyds Bank.

In spite of manufacturing gaining disproportionately from the recent depreciation in sterling effective exchange rate, it is expected that service-sector will continue to drive the UK economy, added Lloyds Bank.