Manufacturing activity suffers a setback | EEF

Manufacturing activity suffers a setback

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Today’s Index of Production gave us our first look at manufacturing activity for the final quarter of, to put it mildly, an eventful year.


The Bad News...

Let’s get this out of the way first. Manufacturing output fell by 0.9% from its level in September, putting the proverbial spanner in the works of the recovery we were hoping to see.




Disappointingly the contraction in output was widespread, with decreases in output in 9 of the 13 manufacturing sub sectors. The largest falls came from the Pharmaceuticals and Textiles sectors which saw output fall by 3.6% and 4% respectively, and hence contributed heavily to the overall drop over the month. Conversely the Electronics and Electrical equipment sectors were able to record modest growth, but this had little impact on overall production.




There is no getting away from the fact that these are a disappointing set of figures. But before we all overact and point to a post Brexit collapse, we believe the final few months of the year will bring some good news.


Reasons to be Optimistic

First of all, as the ONS says, any month-on-month figures must be taken with care, given the volatility they are subject to. The large fall in output in Pharmaceuticals for instance is likely to be at least partially due to a winding down from impressive growth seen in September, in which output expanded by a healthy 2.2%.

What’s more, various other indicators suggest that manufacturing is in much better shape. At such a turning point it is not surprising to see indicators pointing in separate directions.

Healthy PMI recordings, both for the UK and key trading partners in Europe illustrate the pick-up in business sentiment and confidence seen in the industry since the Referendum. Combining this with the much documented (I think we’re all sick of hearing it) fall in pound, and the beneficial effects this will bring as it filters through into high value sectors, and the manufacturing sector doesn’t look so bleak after all.

Our own Manufacturing Outlook Survey points to a similar story, with our member’s output and order balances climbing back into positive territory in Q4, as well as investment and employment prospects improving. These all point to brightening conditions, of which we haven’t seen for some 18 months.

As a result we believe that it is only a matter of time before the production figures reflect a similar story, and start to move in the right direction.

Summing Up

Taken at face value, these production figures could be cause for concern. However as we have said, the overall manufacturing environment does look a lot more promising compared to recent times. We therefore expect these recent trends in production to be reversed and bring with it a moderate expansion in Q4 and overall growth in manufacturing for 2016. Glass half full and all that…


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