Data released by ONS today showed that manufacturing grew in February despite difficult demand conditions in export markets. Industrial production figures were also up, which probably takes the UK away from the knife-edge of a triple dip.
Key data:- Output in manufacturing grew 0.8% in February- The largest upward contributions to growth came from mechanical equipment; transport equipment; and basic metals & metal products- Sectors faring worse were electronics; food & drink; and pharmaceuticals- The trade deficit worsened as exports fell and imports rose- Exports to EU countries increased 0.6%- Exports to non-EU countries fell 4.7% driven by a fall in exports to the US
Manufacturing grew by 0.8% in February but this was on the back of a fall in output of 1.9% in January, which was worse than previously thought. Manufacturing would now have to grow 1.6% in March to avoid a contraction in output in the first quarter. This level of growth would not be unprecedented, as monthly figures are highly volatile, and there was growth of 1.6% as recently as December.
Monthly growth figures can be highly volatile(month on month %change in manufacturing output)
Looking back over the past few months, the economic picture has been relatively weak, but this was to be expected, particularly given the malaise we have seen in a number of key markets, particularly Europe.
Therefore, what was perhaps surprising in today's stats was the relative strength of goods exports to EU markets, which grew 0.6% in February, compared with goods exports to non-EU countries which fell 4.7% in February (though largely driven by the US sequester). But looking over the less volatile three-month period, this is reversed. Goods exports to the EU fell 2.2% and goods exports to non-EU countries have actually increased 2.6%.
Indeed, despite difficult economic conditions, manufacturers have increased sales to non-EU markets in the past couple of years; in the third quarter of 2012, goods exports to non-EU countries hit a record high. And looking ahead to the next three months our Business Trends survey shows that companies expect export orders to improve.
So, while the weakness in Europe seems unlikely to abate any time soon, markets outside of the EU are faring better. It's too soon to write off manufacturing's contribution to a better balanced economy.