UK’s industrial production and manufacturing activity drop in May

UK‘s total production output fell 0.5 percent month-on-month in May, as compared with consensus expectations of a drop of 1 percent. The industrial production data for the month of May has come in better than expected. This just partially countered the upwardly revised 2.1 percent month-on-month increase in production in April. Manufacturing mainly drove the decline in headline figure, dropping 0.5 percent month-on-month, as compared with the consensus forecast of a decline of 1.2 percent.

The decline in May was not unexpected after the industrial production surged in April, in spite of the improvement in industrial sentiment indicators, particularly the PMI and CBI surveys for May and June. The recent data of May continues to hold the prospect of a stronger activity in the second quarter, and a boost to the overall economic growth for the quarter, noted Lloyds Bank in a research report.

Looking ahead, the depreciation in the sterling effective exchange rate since the end of 2015, and particularly in the context of the drop of 11 percent since Brexit, should augur certain rebound in manufacturing output in months to come.

However, the economic growth in the second quarter and the outlook for its resilience beyond are expected to continue to be driven by services. Even if the industrial sector is expected to gain from the weaker currency, the effect of heightened political and economic uncertainty since the referendum is expected to be felt more in the services sector, according to Lloyds Bank.

“The outlook is certainly cloudy for UK firms: while the steep drop in sterling seen since the referendum should provide a boost to exports, more important for the longer-term prospects for manufacturing is the extent on the UK’s access to the single market can be maintained and the nature of the trade deals that the UK is able to negotiate with other key export markets,” noted Markit Economics Chief Economist Chris Williamson.