Decline in UK marketing

Economists were expecting manufacturing to grow in October; therefore, it was an unwelcome surprise when it fell. Manufacturers’ output fell by nearly one per cent, which is a very sharp drop considering that output rose 0.6 per cent in September.

Decline in UK marketing

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The figures for total industrial production fell in September, and in October they fell even more – a significant 1.3 per cent. This is the biggest production fall since August 2013. What is going on? Is the economy in freefall?

There is no need to panic – yet. The main reason for the fall in October was that one of our largest oilfields was temporarily shut down. The Buzzard field in the North Sea has been out of operation due to ongoing maintenance. This also affected industrial production – the biggest output drop was in oil and gas, which went down by a very significant 10.8 per cent, according to the Office for National Statistics (ONS).

GDP numbers will be hit

Commentators highlighted that the fall in industrial production affected the UK’s GDP growth prospects in the final quarter of the year. Howard Archer, chief UK and European economist at IHS Global Insight, commented that retail sales looked good in October, and recent surveys also gave good results; therefore, analysts were hoping that the final quarter would be as good as the third quarter.

Instead, a 1.3 per cent fall in industrial production will undermine growth prospects because the sector will probably now shrink in the fourth quarter. When the Buzzard field comes back on stream, the oil and gas numbers will improve markedly; however, this will not be enough to pull the whole sector back into growth.

Industrial output has a smaller share of the economy than in the past (14.6 per cent), but an outright contraction in this sector would nevertheless be bad news. Electrical control components manufacturers, for example, might find that themselves affected if there is a downturn, although regional component manufacturers with good reputations, such as, will continue to find themselves busy.

Service sector driving growth

Growth has recently been fuelled almost completely by the broader service sector, which in turn has been boosted by very healthy consumer spending; however, inflation caused by the pound’s fall against other currencies will start feeding through to households in 2017-18 and purchasing power will drop substantially.

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