April bounce-back? No, definitely not
After the weak results registered in February and March and some not brilliant PMI data, there were a lot of expectations for April data.
The index of production contracted by 0.8% with manufacturing plunging by -1.4% in the month. This was the worst fall since October 2012. Worryingly, the weak result was related to bad performance in both the domestic and export market (which had performed great in the last year).
In our latest Manufacturing Outlook, we have detected some signs of weakness for the coming months, however this is more than we expected.
Construction also continued its weak moment with a small positive result (+0.5%) in the month, but down 3.3% in the year.
A heterogonous picture
As we often say, the manufacturing world is quite heterogeneous.
Most of the sectors contracted in the month, however looking at the single month may induce some “false” results due to some big orders completed in a specific month. A better way to see the complete picture is to check the latest 3-month on previous 3-month growth.
As the graph shows, only four sectors out of 13 are showing a positive sign and these are the “usual suspects” aka machinery equipment and electronics, but also transport equipment and other manufacturing and repair. On the other side of the table, electrical equipment is facing a really difficult moment with a contraction of 9.4% in the three months due to its high linkage with the struggling construction sector.
Amongst bigger sectors, metals showed an important contraction (-1.8%) and its situation may become even tougher with Trump’s administration introducing tariffs on EU steel and aluminium. The UK biggest sector, food and drink, is also showing a negative sign, but overall not too alarming at the moment (-0.2%). The sector performance was particularly bad in April (-0.5%) hinting a possible relation to the newly introduced “sugar levy”.
Trade position is weakening
Total trade deficit widened in the three months to April due to falling exports in both goods and services. In our Manufacturing Outlook, we have pointed out that trade in Q1 might have been affected by bad weather, but possibly there is something more than that.
Looking at manufactured goods, the weak export performance was mainly related to a drop in pharmaceuticals, machinery and transport equipment. These last two had a terrific year in 2017 which appears to be softening at the moment.
As said above, looking at one single month may create some biased results, however the performance rises some question about the state of the UK economy and put again some pressures on the MPC and the August decision which, once more, looks uncertain.