Today’s Quarterly National Accounts release involved some significant revisions to output growth for 2014 and Q1 2015. For last year, both GDP and manufacturing output were revised upward by 0.2pp to 3.0% and 3.1% respectively. The data confirms that 2014 was a stellar year for the UK economy with GDP growth at its fastest pace in almost decade.
For Q1 2015, GDP was revised upwards by 0.1pp meaning that the economy grew by 0.4% q-on-q. The upward revision was expected given the weak data in initial estimates contradicted most – more bullish – business surveys. Manufacturing output however was unchanged at 0.1% q-on-q.
The biggest upward revision in the annual 2014 GDP figures came from the construction industry which grew by a robust 9.5% compared to the previous estimate of 7.4%. The boom in construction activity followed an upsurge in investment in dwellings which increased by more than 10% in 2014.
This fits well with manufacturing data for 2014 which shows double-digit growth in construction supply chain sectors like non-metallic minerals and rubber & plastics. The non-metallic mineral sector grew by 16% while the rubber & plastics sector by 13% on the back of strong construction activity.
Total production was also revised upwards by about 0.1pp with manufacturing and mining & quarrying making the main contributions. Mining & quarrying still contracted in 2014 but at about half the pace – from -0.6% previously estimated to -0.3%. Manufacturing output saw a 0.2pp upwards revision with the gains broadly spread across sectors.
Similar to annual revisions, the upward revision to GDP for Q1 was driven by construction figures. The construction industry shrunk by -0.2% compared to the -1.1% previously estimated. The contraction in the mining & quarrying industry was also less pronounced revised upwards by 0.2pp from -0.7% to -0.5%.
Manufacturing output was left unrevised at +0.1% in Q1 2015. The industry saw considerable sectoral variation in Q1 with strong growth in the transport and chemicals sectors offset by weakness in electronics and mechanical equipment.
We consider the transport and chemical sectors to be benefiting from the slump in the oil price, on the demand side through higher consumer spending for the former and on the supply side through lower input costs for the latter. On the other hand, the electronics sector is hurt from a slowdown in key export markets (US, Germany) while the mechanical equipment sector is seeing a collapse in demand from the North Sea oil & gas industry.
Prospect for 2015
Prospects for growth in the economy and manufacturing for the UK in 2015 are relatively solid. We expect slower but still healthy growth in the manufacturing sector in the range of 1.5% for 2015. We also expect sector variation in the industry to persist, with consumer-facing sectors operating in the domestic market being the main drivers of growth in manufacturing for the year ahead.