UK manufacturing growth slows at start of 2018 - ONS

Slower UK manufacturing activity held back industrial outback from bouncing back as much as was hoped at the start of 2018.

Industrial production rose 1.3% month-to-month in January, the Office for National Statistics revealed, after falling by the same amount the month before. The rise was slightly below the consensus of 1.5%, meaning year-on-year growth of 1.6% was short of the 1.8% expected.

Total production output was almost entirely accounted for by the Forties oil pipeline coming back on stream after December's shutdown, as well as a rebound in mining output.

Manufacturing output in January rose by a mere 0.1% on the month, down from the 0.3% growth recorded in December and short of the 0.2% forecast. This meant the three-month on three-month growth rate slowed to 0.9% from 1.3%.

The ONS also revealed that construction output continued its recent decline, with a 3.4% contraction in January compared to December and by 3.9% compared to January last year.

Senior ONS statistician Ole Black said: "Manufacturing has recorded its ninth consecutive month of growth but with a slower start to 2018."

He said construction continued to be a weak spot in the UK economy with a big drop in commercial developments, along with a slowdown in house building after its strong end to last year.

The 0.1% rise in manufacturing output, said economist Sam Tombs at Pantheon Macroeconomics, indicates that the impetus to growth from sterling’s 2016 depreciation is beginning to tail off.

Volatility in the mining and quarrying sector means that quarter-on-quarter growth in total production likely will pick up to around 0.8% in the first quarter of 2018, from 0.5% in the fourth quarter of 2017, and its contribution to GDP growth will rise to about 0.12 percentage points, from 0.07pp.

"But last week’s heavy snow will dampen GDP growth by at least 0.1pp—the construction, retail and consumer services sectors likely were hit hardest—ensuring that GDP growth fails to accelerate in Q1. Indeed, we expect quarter-on-quarter GDP growth to slow to 0.3% in Q1, from 0.4% in Q4, undershooting the MPC’s forecast by one-tenth."

January's data was fairly disappointing, agreed Paul Hollingsworth at Capital Economics, with the rise in industrial production mainly due to temporary distortions and the level of output over the two months together was flat.

He said the meagre rise in manufacturing output "suggests Q4’s robust 1.3% quarterly rise may not be repeated in Q1".