An interesting week for manufacturing data with the ONS releasing statistics for the Index of Production, UK trade and construction sector output:
Index of production
On Wednesday, the April data for the Index of Production will give us a good indication of the kind of start manufacturing got off to in Q2 2016. Manufacturing output fell by 0.4% in Q1 2016, failing to extend a positive run of growth for a second consecutive quarter, after growing slightly by 0.1% in the final three months of 2015.
We do not expect a major bounce back in manufacturing output for Q2 2016 as a whole. However output is likely to tick up before returning to a positive growth path in the second half of the year.
Manufactured goods exports saw a good start to the year, increasing by 1.9% in Q1 2016 from Q4 2015, mostly on the back of stronger demand from Europe. Chemical exports were the star performer with the sector buoyed by lower input costs – mostly due to the slump in the oil price – as well as the depreciation in the value of Sterling.
Despite a solid performance in exports, the balance of trade in manufactured goods deteriorated further. An increase of 3% in manufactured imports saw the trade deficit in Q1 2016 widen to -£24.2bn from -£22.9bn in Q4 2015. Given persistent sluggishness in global trade growth, this is poised to be another challenging year for UK’s exporters.
Construction output disappointed in Q1 2016, dropping by 1% from the last quarter of 2015. Encouragingly however, manufacturing sectors in the construction supply-chain appear to have shrugged of this weakness. Non-metallic minerals – where 60% of intermediate demand goes into construction – grew by a robust 6.2% in Q1 2016, while metal products output also expanded by a solid 3.1%.
Growth in the volatile construction industry remains one of the largest question marks this year, as is the extent to which bricks and mortar will support manufacturing sectors in its supply chain.