Today the ONS released the index of production figures for February – a key indicator of how the economy and in particular manufacturing is faring.
Nothing particularly new here…Manufacturing output contracted by 0.1% in February, this followed a more substantial contraction of 0.9% in the previous month. Although this headline figure may appear disconcerting, the fall in output this month as it was last, was almost entirely down to the highly erratic pharmaceutical sector which contracted by 4.4%. This is likely to be at least partially due to the continuing unwinding of the strong growth seen in December. Elsewhere there was broad growth across sectors, with February’s manufacturing output up 3.3% compared to same month a year ago.
This is the most recent data point, in a long line of data releases that confirms that manufacturing is in good health.
So with all this good news, it begs the question, just how well is UK manufacturing doing in comparison to days gone by and in comparison to other countries? We take a look at a few key indicators.
As we can see, although not hitting the pre-crisis heights, manufacturing is broadly speaking doing well. The dip we saw in manufacturing output in 2016q3, in the immediate aftermath of the Referendum result has been more than offset, and with today’s data we can expect to see another strong quarter to start this year.
Perhaps most notably, the post Brexit slump, despite all the hyperbole, pales into insignificance compared to other hefty contractions experienced during recessions in 2000s and 1990s. For instance manufacturing GVA at the height of the recent financial crisis was 10% below the current level, while in the early 1990s recession it was down 11%.
But how does this compare to other countries recent performance? Manufacturing appears to be performing well across Europe, and the UK’s performance, despite impressive actually lags behind the EU and its major counterparts. Germany (unsurprisingly) has performed particularly well – consistently above the UK since the pre 2008 crisis peak – and has also had a resounding start to the year, with manufacturing output up 3.6% in January.
As further indicators (PMIs, trade data) illustrate, the upsurge in manufacturing is not limited to the UK, rather healthy global conditions are allowing manufacturing to excel.
This has been a source of good news over the last six months, with the indicator well and truly rooted above the 50 no change mark since the post Brexit slump, as well as its long run average of 51.6.
Once again however, this performance is not only reflected but bettered by our European counterparts. In March for instance, the Eurozone PMI hit a 71 month high, with new export orders and employment both up for the 45th and 31st month consecutively.
So what does this all mean? Essentially manufacturers, both in the UK and abroad, are currently enjoying a sweet spot, with global manufacturing activity picking up considerably since mid-2016. All the numbers are moving in the right direction and there is a general positive feeling amongst manufacturers. In days gone by this may have resulted in us heralding in some healthy growth figures for the coming years.
Unfortunately a little thing called Brexit means the current macroeconomic environment is shrouded in uncertainty, and as such we expect UK manufacturing performance to temper towards the end of this year and next…