Manufacturing data adds to fears that UK is too undemanding

With an IMF warning on UK growth ringing in our ears, it wasn't the best day for weaker-than-expected manufacturing numbers to emerge...

by James Taylor
Last Updated: 19 Aug 2013
Should the Government be doing more to boost UK manufacturing? The sector has been one of the few sources of good economic news in the last year, but there was more evidence today that its recovery seems to be coming off the boil: output inched up just 0.2% in March, with industrial production (which also includes energy and mining) grew just 0.3%. That's well below the 0.4% and 0.8% the City was expecting, and may be an indication that producers are starting to feel the impact of reduced demand. And all these austerity measures won't help; indeed, the IMF has just downgraded the UK's growth forecast for this year, arguing that we faces 'strong headwinds' from the Government's fiscal squeeze...

The Office for National Statistics said the lower-than-expected manufacturing data was due to lower production of big-ticket consumer goods like fridges and computers, as well as factory machinery. That's two bits of bad news at once. The manufacturing sector has enjoyed a good 12 months, boosted by the depreciation of the pound. But it may be that this growth was just down to companies rebuilding stocks rather than additional demand - and with consumers clearly feeling the pinch, it's hard to see demand picking up substantially any time soon. Although higher oil prices clearly haven't helped: this has squeezed manufacturers' margins, forcing many to put up prices, which could also suppress demand.

The IMF certainly seems to think so: it has just downgraded its UK 2011 growth forecast - from 2% to 1.7% - the result, it said, of 'front-loaded fiscal consolidation dampening domestic demand' (that’s wonk-ese for people being too skint to buy stuff, because of all the tax they're shelling out). It wasn't all bad news though: the IMF reckons the UK is doing a decent job of dealing with its debt mountain - even if the result is likely to be lower growth than the European average, which it reckons will be 2.4% this year and 2.6% in 2012.

Lower interest rates and a lower pound are obviously a big help to UK exporters. But since its austerity measures are, if anything, likely to suppress demand for their products, perhaps the Government needs to be doing more to help? It's clearly taking a more active role in promoting UK plc overseas - apparently the gag in Whitehall these days is that the FCO has been renamed the Foreign and Commercial Office - but perhaps there's still more to be done close to home? All ideas welcome...

 

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