The index of production came out this morning and showed that manufacturing had grown by 3.2% between June and July. These figures show a bounceback in manufacturing output, suggesting that the weakness seen in June as a result of the Jubilee celebrations has now been unwound.
In the last month there was growth in most manufacturing sectors, however, annual growth figures show a more mixed picture.
Transport sectors, which include motor vehicles manufacturing and civil aviation, have continued to see strong growth. Both have benefited from demand in Emerging Markets. The motor vehicles sector in the UK is also proving resilient – although the sector suffers from overcapacity in Europe – the UK benefits from being the sole producer of a number of models. We are forecasting growth of 5.7% in the motor vehicles sector this year.
Other areas of strength include Electrical Equipment, (this includes things like power generation equipment) which had a strong start to the year, and our recent survey shows that manufacturers in the sector remain optimistic about the outlook for the next few months as well. We now expect this sector to grow by 10.5% this year.
However, some sectors are suffering from the downturn in global demand we have seen in recent months. In particular, the basic metals sector is very exposed to swings in demand, which can reduce prices quite quickly and put pressure on margins. The recent strengthening of the pound is likely to have exacerbated this. We expect basic metals to contract by 5.2% in 2012.
The non-metallic minerals sector is similarly exposed to swings in global demand, and the sector is also likely to suffer from the continued downturn in construction, which is a major market for non-metallic mineral manufacturers. We are now forecasting that this sector will contract by 14.7% this year.
All forecasts remain subject to macroeconomic risks, for example the potential of further problems in Europe; whether or not the upcoming ‘fiscal cliff’ in the US is resolved; and whether China faces its ‘hard landing’. However, there may also be some positive news if the UK recovery regains momentum in the second half of the year as inflation starts to ease, and consumers are in a better position to spend.