U.K. Manufacturing Rises Less Than Forecast as Growth Eases
U.K. factories increased production by less than forecast in December, suggesting manufacturing is set for steady rather than runaway growth this year.
Output rose 0.3 percent from November, the Office for National Statistics said today in London. That compares with the 0.6 percent median of 26 estimates in a Bloomberg survey. Industrial production, which also includes utilities and mines, climbed 0.4 percent, also less than predicted.
While the U.K. economy expanded at the fastest rate since 2007 last year, industry surveys on services and manufacturing this week suggested the pace may have eased at the start of 2014. The Bank of England kept its key policy rate at a record-low 0.5 percent yesterday, while a report from the National Institute of Economic and Social Research today says consumer spending and a buoyant housing market will drive growth.
“The story from the industrial sector was a little disappointing,” said James Knightley, an economist at ING Bank NV in London. “The concern is that the manufacturing series is consistently undershooting what the business surveys are suggesting is happening.”
Industrial output, which accounts for 15 percent of the economy, rose 0.5 percent in the final three months of the year. That’s down from the 0.7 percent previously estimated. Statisticians said the revision removed less than 0.05 percentage point from gross domestic product growth of 0.7 percent in the period.
Manufacturing, which makes up 10 percent of the economy, grew 0.7 percent in the fourth quarter compared with an initial estimate of 0.9 percent. Industrial output was 12.3 percent below its peak in the first quarter of 2008, while manufacturing was 8.8 percent below. Services, the largest part of the economy, have recovered all of the output lost during the recession.
The pound pared an advance against the euro after the data today and was 0.3 percent stronger at 83.03 pence at 10:32 a.m. London time. It appreciated as much as 0.4 percent before the release. Sterling was little changed at $1.6338.
The ONS said in a separate release that Britain’s goods-trade deficit narrowed to 7.7 billion pounds ($12.6 billion) in December, the smallest since July 2012, from 9.8 billion pounds in November. Exports rose 1.9 percent, boosted by shipments of oil, chemicals and aircraft. Imports fell 4.7 percent, largely reflecting aircraft and ships.
Sales to the European Union, the destination for half of British exports, rose 2.7. Sales outside the 28-nation bloc rose 1.2 percent.
The shortfall in trade in goods and services narrowed to 8 billion pounds in the fourth quarter from 10.2 billion pounds in the third, suggesting net trade contributed to growth after subtracting 1.2 percentage points in the third quarter.
In December, the total trade deficit fell to 1 billion pounds from 3.6 billion pounds, the biggest narrowing since records began in 1998. The surplus on services rose to 6.7 billion pounds from 6.2 billion pounds in November.
The figures add to evidence that exporters are defying the strength of the pound, which has gained about 6 percent on a trade-weighted basis since July 31 last year. According to the Chartered Institute of Purchasing and Supply, export orders stood at a three-year high last month as firms saw rising demand the U.S. and Europe as well as Asia, Brazil and Scandinavia.
Some economists urged caution. “The headline deficit is flattered by a big swing in oil and erratics trade that might not prove lasting,” Rob Wood, an economist at Berenberg Bank in London and a former BOE official, wrote in a note to clients.
Within industrial production, extraction of oil and natural gas rose 4.7 percent while utilities output fell 1.3 percent. Seven out of 13 manufacturing sectors increased production, led by the pharmaceutical industry. Downward pressure came from manufacturers of motor vehicles and trailers.
Gross domestic product will expand 2.5 percent this year, Niesr said today. “We expect consumer spending to remain the key driver of the recovery in 2014 and 2015, supported by continued buoyancy in the housing market,” the London-based research group said.
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