June's Index of Production | EEF

June's Index of Production

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This morning's Index of Production confirmed a solid five-quarter run of growth for the UK's manufacturing sector, with output growing 0.2% in the three months to June. Manufacturing output is now 7.4% below pre-recession levels.

Manufacturing has grown steadily since the start of 2013, but has not yet returned to pre-recession levels

Source: ONS, 2014

This is notably softer than the growth rate in the first quarter of the year (when manufacturing grew by an impressive 1.4%) but the slower pace was largely due to a large dip in output in May. The sector clawed back some of May's lost ground in June, growing by 0.3% over the month.

However, looking below the high-level manufacturing figures, there is a more mixed performance, in contrast with broad-based growth in the first quarter of the year. In June, there was growth in five of the thirteen key manufacturing sub-sectors, while the remaining eight contracted.

Mixed picture for manufacturing sub-sectors in June

Source: ONS, 2014

Transport equipment continues to perform strongly, and was the largest contributor to growth in June. The motor vehicles sector drove this improvement, growing by 5.6% over the month. This was the largest increase in motor vehicles production since January. Output in transport equipment is now 24% above its pre-recession peak (NB transport equipment includes aerospace, which did not experience a fall in output during the recession).

Basic metals and metal products provided the second-largest boost to growth, growing at its fastest rate since September 2013, though output in this sector remains 15% below pre-recession levels.

Food and drink is the biggest manufacturing sub-sector and provided the third largest contribution to growth, growing 0.5% over the months. Output in this sector is now 2.2% above its pre-recession level.

Offsetting this, the largest drop in output over the month came from textiles, though this followed from a strong May. There was also on-going weakness in pharmaceuticals; output in the sector dipped 1.4% and is 27% below its pre-recession peak.

Despite something of a mixed sectoral picture, there is reason to have confidence that manufacturing will continue to grow into the second half of the year, as we saw on Friday with the manufacturing PMI. However, there are also reasons for caution. Struggling markets in Europe and geopolitical uncertainty could yet weigh on output growth in the rest of 2014.


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