UK manufacturing grinds to life in December

Industrial production rose 1.1% in December, according to the ONS, driven by a surprise 1.6% increase in manufacturing output.

by Rebecca Burn-Callander
Last Updated: 19 Aug 2013

The UK may not be headed for a triple dip recession after all, according to the latest data from the Office for National Statistics. There was a (slight) boost to industrial productions and exports at the very end of last year, signaling that the UK economy may be leaning more toward recovery than ruin.
 
Economists had been expecting a barely there 0.8% rise in UK manufacturing, and are no doubt pleasantly surprised that the sector achieved double the forecast, especially after falling 0.3% in November.
 
Indeed, December was the only positive month for the quarter, and across the last three months of the year as a whole, industrial production slumped 1.9%. That’s its biggest fall since the first quarter of 2009.
 
However, looking on the bright side (at December alone), the UK saw an increase in production, driven by a spike in overseas sales of goods, up 3% for the month. This is good news for exporters: it’s the largest rise for seven months. Plus, the UK’s imports increased by just 0.9%, narrowing the trade deficit from £3.6bn to £3.2bn. While this figure remains stubbornly high, it’s a step in the right direction.

If this export-led growth continues in January, the UK could move further away from the dreaded triple dip. And early indicators are pretty positive so far. January PMIs show that manufacturing output rose for the third month running in January, growing at the fastest rate for 16 months.
 
Exports have proved unreliable in the past however, and the ongoing lack of demand from the eurozone, the UK's nearest and dearest trading partner, is still a challenge. However, increased sales in the emerging markets, the middle east and the US are helping to make up the shortfall.
 
So, what does this mean for economic policy? Well, given that there has been this little December lift, it’s likely that the Monetary Policy Committee will maintain its wait-and-see strategy, holding off on any more quantitative easing for the time being. However, if UK consumer spending remains muted, depressed by ongoing low wage growth and high inflation, and the global economic outlook remains gloomy, some economic levers may have to be pulled.
 
Much depends on the next quarter. Now might be a good time to start crossing fingers and toes. 

UPDATE: MT was spot on. The Bank of England has chosen not to inject any more money into the economy, leaving its quantitative easing (QE) programme at £375bn. Interest rates also remain unchanged at 0.5%.

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