Industry is back at November’s level and manufacturing keeps on growing
Industrial production expanded by 1.3% in the month offsetting the contraction experienced in December and again reaching the level of November 2017. This big up and down in production was almost entirely due to the Forties pipeline issue, indeed the mining sector expanded by 23.5% in the month after a contraction of 19.1% in December. Total industrial production is currently at a level 1.6% higher than the one of January 2017.
Manufacturing continues its expansion and set a new record. This is the ninth consecutive monthly growth – the longest expansion since record began in 1968.
Sectors closely related to the export market and capital investment are those pushing the sector high. Machinery equipment and electronics expanded respectively by 3.2% and 2.0% in the month and their levels are 11.0% and 6.5% higher than a year ago. This is in line with what we reported in our latest Manufacturing Outlook.
Unfortunately talking about records, it’s highly likely that from March manufacturers will need to re-start the race towards the 10-months expansion. Why? Well it was pretty cold in February.
What happened last time the UK experienced such cold and snowy weather?
February was definitely freezing cold with snow covering the vast majority of the country and not just the areas used to it. It is highly likely that the disruption related to that had an effect on industrial production and in particular on manufacturing. People were not able to go to work and goods were not able to be delivered causing big disruptions in the normal production process. Considering how full current order book are, a contraction in manufacturing output is highly likely.
Let’s see what happened in the three most recent cases of such a similar weather with snow and low temperatures affecting the vast majority of the country.
As expected, in each event manufacturing suffered the most together with extractive activities. However big bounces back happened in the next month and we might see this situation in February and March data for 2018. It is also interesting seeing how total production was not highly affected by bad weather thanks to big boosts provided by electricity and gas supply which clearly moved in the opposite direction due to high demand of energy during cold spells.
Trade deficit is widening
Moving to trade, stats are telling us that the trade balance deficit has widened by £3.4 billion in the three months to January 2018. When erratic goods are excluded, the situation is a little bit more positive (£2.6 billion deficit), but nothing to cheer about.
The widening deficit is a story of trade in goods deficit which has started to expand again, but also of a small decrease in trade in services which continues to be the side recording big surpluses on the international markets.
How manufactured goods did in 2017
In our latest blog on trade we focused our attention on total trade. This time we will talk specifically about trade related to our manufacturing sector and how manufacturers were able to expand in different markets in 2017.
As the table shows, appetite for UK manufactured goods is almost exactly split between EU and non-EU partners, however the first category expanded much quicker than the second with export to EU growing by 13.3% in the year.
The non-EU market expanded by 7.8% but the picture is quite heterogeneous in its breakdown. The fastest growing market amongst big partners was China with an expansion of 21.1%. We have highlighted in the past how appetite for imports by China was one of the key reason behind the better than expected global growth in 2017 and these stats appear to confirm this statement. The bad news is coming from the US which is the UK’s main export partner accounting for 15.3% of total manufactured export. In 2017 growth was zero, after a contraction of 0.1% in 2016.
This may be a cause of concern also in light of the recent decision of president Trump to introduce new tariffs on steel and aluminium. The steel and aluminium market is a relative small market, but these goods are fundamental inputs in manufacturing and this decision will clearly have repercussions on several manufacturing sectors.
Well, this, and also the possibility that a trade war has just started…