UK industrial production drop marginally offsets previous rises

UK industrial production modestly rose in October after printing flat in September, driven mainly by volatile components. This came against the expectations of a decline, but was in line with consensus expectations. Mining & quarrying output (0.9% m/m, +0.1pp contrib.) and water & waste management (1.7% m/m, +0.1pp contrib.) were the main drivers.

Manufacturing partially offset this, however, decline was expected by 0.4% m/m (detracting 0.3pp), partially cancelling out the manufacturing output growth seen over the past two months. Within manufacturing, pharmaceuticals was a key contributor (+0.2pp) although this was more than offset by other manufactures (-0.3pp) and machinery & equipment (-0.1pp).

In terms of the main industrial groups, production was thus boosted by energy goods (1.3% m/m, +0.3pp contrib.) and non-durable consumer goods (0.5% m/m, +0.1pp contrib.). This, however, was mostly offset by a significant decline in investment goods (-1.6% m/m, -0.3pp contrib.). Intermediate goods and durable consumer goods also detracted on the month (-0.1pp contrib. each).

IP Q4 carry over is broadly unchanged at +0.3% q/q while that of manufacturing is at 0.3% from -0.4% q/q in Q3, suggesting an improved momentum and a possible positive contribution to GDP growth in Q4. However, development in the latter has rather been marked by strong prints in the latter part of Q3. Moreover, anecdotal evidence from the EEF Q4 15 Manufacturing Outlook Report suggests that "manufacturers are enduring a difficult end to the year amidst the gathering gloom from the global economy". This coincides with the EEF downgrading its manufacturing output growth for 2015 to 0.1% from 0.7%, confirming the bleak outlook for British industry.

"We continue to believe the sector remains a cause for concern as a structural lack of competitiveness remains, itself magnified by a strong currency and government policies (fiscal consolidation and the EU referendum)",says Barclays.