Is the UK really booming asks Schroders as manufacturing slides back

9th October 2013

UK manufacturing has suffered a dramatic reverse in August falling by 1.1% according to the Office for National Statistics and much further than the consensus figure which suggested growth would be +0.4%. Wider industrial production also fell by 1.1%, again, against a consensus figure of +0.4% growth.

Schroders European economist Azad Zangana says: “Following the weaker than expected growth in services output for July, the latest manufacturing data will lead many to question whether the UK is really booming at the moment. Leading indicators such as the purchasing managers indices were suggesting growth for the third quarter overall of 1.5-1.6% compared to the second quarter, but the official ONS data has been far weaker.

“The weaker than expected manufacturing data has so far driven the pound about a third of a percentage point lower against the US dollar. It should also begin to persuade markets that the UK is in no condition to withstand rising interest rates. Markets have been pricing in a rise in interest rates before the end of 2014, despite the Bank of England’s forward guidance suggesting no increases in interest rates before 2016.”

Over the year, the ONS says that production output decreased by 1.5% between August 2012 and August 2013. This decrease reflects falls of 0.2% in manufacturing (the largest component of production), 10.1% in mining & quarrying and 3.5% in the electricity, gas, steam & air conditioning sector.

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