U.K. manufacturing output rose for a third month, lifting the annual growth to a near 16-year high in July. Industrial production recovered after usual maintenance work in the oil fields dragged down June's figure.
Manufacturing output grew 0.3% on a monthly basis in July, the Office for National Statistics said in a report on Wednesday. July's increase was unchanged from the prior month's rise and matched economists' expectations.
After increasing 4% in June, output recorded an annual growth of 4.9% in July, which was the largest growth since December 1994 and in line with economists' expectations.
Despite strong growth in July, economists expect output growth to lose its momentum in the month ahead. Manufacturers took advantage of weak currency in the earlier part of this year, but going forward, signs of a slowdown in the global economy as well as fiscal squeeze are likely to adversely impact the manufacturing sector.
"It is important to support the manufacturing recovery as the sector's progress remains critical to the much-needed rebalancing of the UK economy towards exports and investment," said Chief Economist at the British Chambers of Commerce, David Kern.
Output increased in nine of the 13 manufacturing sub-sectors and fell in four sub-sectors. The largest annual increases in output were in the machinery and equipment industries, which rose by 17.7%. Meanwhile, the largest decrease in output over the same period was 3.8% in the chemicals and man-made fibres industries.
Industrial production growth was similar to manufacturing output figure. Industrial output was up 0.3% in July, following a 0.5% fall in the previous month. June industrial output was pulled down by maintenance work in the oil fields.
Even if output posts similar increases in August and September, industry won't make as strong a contribution to GDP growth in third quarter as it did in the second quarter, commented Jonathan Loynes at Capital Economics. "Overall, UK industry is still doing pretty well, but it may not last too much longer."
Industrial output growth accelerated on a yearly basis in July to 1.9% from 1.3%. However, growth was slightly smaller than the consensus forecast of 2%. Output in the mining and quarrying sector slipped 7.7% compared to the same month a year ago with an 8.4% fall in oil and gas extraction. Output of the energy supply industries was down in July by 4.5%.
The ONS figures contradict the findings of recent Purchasing Managers' survey of Markit Economics. British manufacturing sector logged the weakest growth in nine months in August with the increase in new orders losing momentum, the survey showed.
However, a quarterly survey from the Engineering Employers Federation and accountancy services firm BDO LLP said manufacturing output and orders were "buoyant" between July and September on the back of strong overseas demand.
The British economy had expanded at its fastest pace since 2001 in the second quarter. GDP rose 1.2% sequentially in the second quarter following 0.3% growth in the first quarter. BCC foresee GDP growth of 1.7% in 2010 and 2.2% in 2011.
The Bank of England is slated to announce its interest rate decision on September 9. The central bank is widely expected to hold the key interest rate at a record low of 0.5% and to maintain the size of quantitative easing at GBP 200 billion.
For comments and feedback: editorial@rttnews.com