Industrial production in the UK rose by 0.3% in the three months to July 2017, according to figures published this morning by the Office for National Statistics. The ONS says this was due mainly to a rise of 2.2% in mining and quarrying.
The largest contribution to the rise in that figure came from oil and gas extraction. The ONS says this was up by 2.6%. This was due mainly to a lack of maintenance, meaning production continued and extraction took place that otherwise would not have taken place.
Total production was estimated to have increased by 0.2% in July compared with June. The ONS attributes this mainly to a rise of 0.5% in manufacturing; the largest contribution to the rise came from transport equipment, up by 7.6%.
The monthly increase within transport equipment was due to motor vehicles, trailers and semi-trailers, which rose by 13.7%, the strongest growth since March 2009; evidence suggested that the production of new models contributed to the growth.
Total production output for July 2017 compared with July 2016 increased by 0.4%. Manufacturing provided the largest upward contribution, increasing by 1.9%. Mining and quarrying partially offset the increase in total production, falling by 6.5%.
Addressing these and other short-term economic indicator figures including UK trade, ONS senior statistician Kate Davies said that manufacturing remains relatively subdued since the start of the year. July, though, showed the first significant monthly growth of 2017.
Car production up
Kate Davies, courtesy of the UK ONS
Car production increased partly thanks to new models rolling off the production lines. Construction output fell for the fourth month in a row. Private housing-building contracted sharply in July after a strong couple of months.
“The trade deficit was little changed in the three months to July with an increase in imported goods partially offset by an increase in exports of services,” she said. “Exports of goods to the EU increased but this was offset by falling goods exports to the rest of the world.”
For Ruth Gregory, UK economist at Capital Economics, the data show that the industrial and construction sectors are still providing little offset to the consumer slowdown. She concedes that the rise of 0.5% in manufacturing output in July, the biggest increase since December, was robust.
Smaller gain for overall production
But overall production – which is what matters for gross domestic product (GDP) – posted a smaller 0.2% monthly gain. The construction sector also seems to be struggling to recover from its recent slump, she adds.
She describes this morning's trade figures as fairly disappointing. The trade in goods and services deficit was unchanged at £2.9bn in July. But the three-month export volumes growth rate (excluding oil and erratics) fell further from 1.7% in June to 0.5% in July. Import volumes rose by 0.1%.
She remains optimistic, however, that growth should hold up fairly well in the second half of the year, rather than slow.
Data bring welcome news
Chris Williamson, courtesy of IHS Markit
Chris Williamson, chief business economist at data specialist IHS Markit, said the data bring welcome news after the 0.3% drop in production recorded in the second quarter. They also bring the official data more into line with recent upbeat business surveys, he adds.
The official data have been especially volatile in recent months, in part due to car production slumping in the second quarter but reviving again in July. This makes the underlying health of the manufacturing sector as a whole difficult to gauge, he commented.
“There was disappointing news on construction, however, where output fell 0.9%, below all economists’ forecasts polled by Reuters,” he said. Echoing Ruth Gregory he says that export data also disappointed somewhat.
Although rising 1.2% in the three months to July, the increase in overseas goods sales in the latest three months was the weakest since October of last year.
He expects to see manufacturing growth in August, but the manufacturing upturn needs to be looked at in the wider context of sluggish exports, declining construction activity and the squeeze on consumers affected by low wages and price inflation.
Slowdowns in services and construction are a concern and highlight subdued domestic demand and investment trends. Momentum continues to be gradually eroded, he concludes.
Why the IoP is important
The Index of Production (IoP) is an important economic indicator and one of the short-term measures of economic activity in the UK, explains the ONS. The production industries’ weight accounts for 14.6% of the output approach to the measurement of GDP.