Manufacturing sector hovers on brink of recession

Concerns grow as Britain’s output slumps for the fifth consecutive month

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The UK manufacturing sector was on the brink of recession yesterday after official data showed output fell for the fifth straight month in July.

The Office for National Statistics (ONS) said manufacturing output dropped 0.2% during the month, marginally worse than the 0.1% drop expected by analysts. The sector’s activity was also 1.4% lower compared to a year ago.

Paul Dales, of Capital Economics, said the sector needed to show growth of 0.7% in both August and September for UK manufacturing to avoid a technical recession, as defined by consecutive quarters of falling output.

He added: “The manufacturing sector is leading the rest of the economy into recession. Overall, this data lends further support to our view that the whole economy will soon enter a recession and contract by around 0.2% next year.”

The monthly fall in manufacturing output was driven by a contraction in production of optical and electrical equipment, the ONS said, down 1.3%. That tallies with evidence from the high street of falling sales for electrical goods for retailers such as PC World and Currys.

During the three months to July, the ONS also reported a 2.4% drop in food, drink and tobacco manufacturing output. Soaring raw material costs have seen food inflation reach record levels in recent months, piling pressure on household budgets.

Overall industrial output, which includes the manufacturing sector as well as industries such as mining and energy supply, fell 0.4% in July, again more than expected. That took the annual industrial decline to 1.9%.

The ONS said the contraction was driven by oil platforms reducing oil and gas output. Energy supply output actually increased between June and July by 0.9%.

Manufacturers will be hoping for some relief from the cheaper pound. Sterling has fallen sharply against both the US dollar and the euro.

Howard Archer, UK economist at Global Insight, said: “Manufacturers are now being hit hard by muted domestic demand, weakening activity in key export markets, elevated energy and commodity prices, and tight credit conditions. While the weaker pound is providing a boost to UK manufacturers, this is being countered by significantly slowing growth in the eurozone and a stagnant US economy.”