Manufacturing declines in November but tentative bright spots on the horizon

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A disappointing decline in the Index of Production stats out this morning for manufacturing with the November 2012 figure down 2.1% on November 2011 and 0.3% on October 2012.

If we look at the index over time you can see that we haven't had much overall growth since about mid-2011:

Index of Production: Manufacturing (monthly index, 2009=100)

Two important points to make on top of this overall result however:

Divergence between sectors is an ongoing theme;

Some more recent signs are more positive.

Divergence continues

Today's result overall hid on-going divergence between sectors, which has been a feature of UK manufacturing since the 2008/09 recession. For example Transport Equipment, which includes the production of motor vehicles as well as aircraft, boats, and trains - is actually 6.8% up in November 2012 compared with November 2011 - and 3.1% on a monthly basis. Conversely, Food, Beverages, & Tobacco was down 4.1% on November 2011 and 1.1% on October 2012.

A major factor driving these divergences is the exposure different sectors have to different markets around the world. There have been high-profile stories of strong growth in the export of motor vehicles for example to fast-growing emerging markets like China - whereas by contrast the UK's food and drink sector is not only less export intensive than other manufacturing sectors but what it does export is also more focused on European markets.

More positive signs

Earlier this month we had the PMI reading for December 2012. The PMI is a lead indicator for what output is likely to look like and has a tight relationship with the official IoP stats.

Contrary to expectations, the Manufacturing PMI actually rose above the 50 no change mark to 51.4 - the first time we have had a reading associated with growth in the manufacturing sector since April 2012.

We have also recently had action in Washington that has taken major tax hikes for most Americans off the table and made it likely that that any spending cuts still to be agreed will be modest. In other words the so-called 'fiscal cliff' is a much lower risk to world growth than it was even a month ago.

These developments support our expectations for 2013 that we will see a return to modest growth for the year overall after a challenging 2012.

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