UK industrial production data remains mixed, ONS confirms

UK industrial production remained stable on a month-to-month basis in the run-up to the Brexit vote, according to official data, though this lagging official data has been followed by gloomy findings from several surveys of the sector.

Industrial production in June rose by a slight 0.10%, the Office for National Statistics revealed, better than the consensus estimate for 0.10% fall and rebounding from the revised previous 0.6% decline the month before.

Year-on-year, industrial production rose 1.60%, improving from the 1.4% in May as expected.

UK manufacturing production fell 0.3% in July, worse than the 0.2% consensus forecast decline but an improvement on the 0.6% drop in May.

June's manufacturing production rose 0.9% compared to the same month last year, short of the expected 1.3% rise and down from the previous 1.5%.

ONS Chief Economist Joe Grice said: “As we previously highlighted in our preliminary estimate of GDP, production and the wider economy grew strongly in April and then remained at roughly the same level throughout May and June.

“Any uncertainties in the run-up to the referendum seem to have had little impact on production, with very few respondents to our surveys reporting it as an issue.”

Barclays economists warned that that strong industrial production growth in the second quarter was due to a bumper month in April and they believe this positivity is "set to be short-lived" due to the effect of the EU referendum outcome, with post-referendum surveys pointing to a marked decline in output and sentiment.

"Overall, we remain of the view that UK industrial production and manufacturing remains a cause for concern; we believe this is driven by a structural lack of competitiveness as well as government policies, only to be amplified by prolonged uncertainty regarding the UK and its trading relationships with the EU and the rest of the world."

Grim Post-Brexit data

July's Markit/CIPS UK manufacturing purchasing managers’ index showed a fall to 48.2 from 52.4 in June and came in weaker than the flash estimate of 49.1, marking the lowest level since February 2013.

This was only the second time since early-2013 that the PMI has fallen below the 50 level that separates contraction from expansion, with levels of production and incoming new orders both contracting as the impact of increased business uncertainty on the domestic market offset an exchange rate supported increase in new export business.

Markit's forward-looking new orders indicator also dropped by eight points to 48.3, its largest month-on-month decline since October 1998.

Moreover, the CBI Industrial Trends survey for July showed a marked decline in output expectations over the next three months, dropping by 17 points to -6, while business optimism registered its sharpest decline since the mid-1970s, falling to -47 from -5 for the previous quarter.

Furthermore, the EEF, the manufacturers’ organisation, markedly revised down its forecast for manufacturing growth as a result of the referendum outcome, saying it now expects growth of -0.3%, down from its -0.1% forecast previously, whereas in 2017 it expects growth of -1.1%, after 1.2% previously.

EEF's survey found 38% of firms now expect to reduce investment, with mid-sized and larger firms the most cautious, while the benefits of a depreciation in GBP were only expected by 40% of respondents, while 40% see it as a likely negative.