Output figures dampen recovery hopes

Chris Wheal

Mar 10th 2010

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Production output in January 2010 was 1.5% lower than in January 2009 but manufacturing output rose overall by 0.2% in January 2010 compared to the same month a year ago, showing the first annual increase since March 2008.

The latest figures from the Office of National Statistics (ONS) make for mixed reading. Between December and January total production output fell 0.4% and manufacturing output decreased by 0.9%. But the cold weather won't have helped.

Year on year, production output in the mining and quarrying sector decreased by 8.8%, as did oil and gas extraction. Output of the energy supply industries fell by 5.2% with decreases in electricity supply and water supply output, the Office of National Statistics has confirmed.

Total production output

Total production output decreased by 0.4% between December and January. Mining and quarrying output increased by 1.4% with an increase in oil and gas production output of 1.1%.

Energy supply output increased by 1.3% on the month, with increases in the electricity and gas supply outputs being partially offset by a decrease in the water supply output.

Manufacturing output in January compared with a year ago increased in four of the 13 sub-sectors and fell in nine sub-sectors.

Transport and manufacturing

The largest contributors to the rise were the transport equipment industries, which rose by 17.0%, the food, drink and tobacco industries, which increased by 2.0%, and the other manufacturing industries, which rose by 6.5%.

The largest decrease in output over the same period was 4.2% in the paper, printing and publishing industries.

Between December and January, manufacturing output decreased by 0.9%. Output decreased in 11 of the 13 sub-sectors and rose in two sub-sectors.

Electrical equipment

The largest negative contributions to overall output were decreases of 3.0% in the electrical and optical equipment industries, 2.9% in the chemicals and man-made fibres industries and 8.7% in the non metallic mineral products industries.

The largest positive contribution to overall output was an increase of 8.2% in the machinery and equipment industries.

Not good for the pound

Duncan Higgins, senior analyst at Caxton FX said: "As with UK retail sales, the icy weather in January has clearly dented production. Though even with this as an excuse, the data is clearly hugely disappointing, falling more than a percent short of expectations.

"Of real concern now is the prospect of economic contraction, with the industrial sector also producing a negative figure for the month. Following hot on the heels of yesterday's weak trade balance figure, the prospects for the UK recovery are not particularly uplifting at present.

"It is hard now to envisage the Bank of England not resurfacing the possibility of additional stimulus measures in order to prevent the economy recovery from derailing," said Higgins.

CaxtonFX said sterling hit its weakest level against the euro since December 1st 2009. The pound is also losing further ground to the US dollar, down a further cent in trading today with the price now below 1.49.

Long-term view

But the long-term trend is still positive. Better year on year figures fro manufacturing, rather than month on month, is a good sign. And manufacturing and transport equipment produced the healthiest results. I'm inclined to be less gloomy.