Rebalancing hopes dashed by manufacturing data
Simon Ward
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Industrial and manufacturing output figures for August were shocking, showing falls of 2.5% and 1.9% respectively from July to new lows for the recession. If the figures are to be believed, UK manufacturers are bucking the trend of global recovery, despite the supposed big boost from the plunge in the pound. The US, Japan and Spain have reported industrial output gains of 0.8%, 1.8% and 1.1% respectively in August (Germany and France publish later this week).
There are reasons for doubting the figures, including the discrepancy with manufacturing purchasing managers' survey results and the uniformity of declines across industries, suggesting a problem with seasonal or working-day adjustments. The numbers, however, will feed directly into the first estimate of third-quarter GDP released on 23 October – this may now show little if any growth (although later upward revisions are probable).
Hopes of the UK economy "rebalancing" towards a manufacturing-led recovery in response to a lower exchange rate look even more tenuous. An economic revival remains dependent on the much larger services sector, with financial services playing a key role. Fortunately, recent business surveys suggest that service industries are performing much better than manufacturing – see yesterday's post – although this has yet to receive confirmation by official services output data.
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