Will output increase in the second half of the year?

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Earlier this week the UK manufacturing PMI for September was released. Despite expectations that the sector might start to pick up in the third quarter of the year, the PMI remained in firmly negative territory for the fifth month running. Although there were some positive signs that overall orders had strengthened, the picture is still softer than we might have hoped at this stage.

However, the most recent manufacturing production figures showed something rather more positive. In July – the first month of the third quarter – manufacturing output increased by 3.2%. True, much of this was smoothing out the 2.9% Jubilee-related fall in output from June, but this was a much stronger number than the PMIs might have led us to believe.

Similarly, we have seen fairly strong investment and employment numbers from manufacturers in the last few quarters, which suggest that companies are still planning to grow. In particular, companies are investing and innovating to meet growing demand in places like the Middle East and Latin America.

So what are the prospects for the rest of the year? Well, with a series of one-off events including the Jubilee and the Olympics, this year's data are going to be difficult to read. However - though weakness in Europe as well as concerns about China and the US present sizeable risks - we do still expect to see some improvement in growth start to emerge in the data for the third quarter. The significant differences we have seen between sectors of late are likely to continue, with civil aviation, energy and motor vehicles likely to remain strong in contrast to weakness in sectors such as metals and non-metallic minerals.

Next week ONS will release output data for manufacturing and production, as well as the latest trade figures. These will start to provide a clearer picture of just how the third quarter of the year played out.


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