Industry figures shine light of hope

The Office for National Statistics (ONS) revealed a 1.2 per cent rise in manufacturing output between April and May, defying expectations of a further deterioration following the shock 0.7 per cent drop the previous month. Economists had forecast no change on the month.

A wider reading of industrial output, which includes energy production and mining, was one per cent higher in May after a 0.4 per cent drop in April and against forecasts for 0.2 per cent fall.

Meanwhile, separate figures showed the UK’s trade deficit narrowed in May as exports increased at their fastest pace for more than two years, boosting hopes that the sector can help the UK to emerge from its double-dip recession.

The goods trade deficit shrank to £8.363bn in May from £9.709bn in April, the ONS said. Economists had forecast a deficit of £9bn. While the figures were warmly welcomed, economists warned moving a bank holiday from May to June for the Diamond Jubilee may have flattered the figures, which should be treated with caution.

They added that the UK economy is still embroiled in a struggle as domestic demand remains weak and the global economy is slow amid the eurozone debt crisis.

The rise in manufacturing output was helped by a strong performance from food and drink makers, who reported a boost ahead of the Jubilee celebrations.

Blerina Uruci, an economist at Barclays, said manufacturing over the three months to May was still 0.2 per cent down on the previous quarter, indicating weak underlying trends.

She expected manufacturing to fall again in June and to be “subdued” for the second quarter of 2012 as a whole.

Ms Uruci added: “From the performance of the industrial sector in recent quarters, it appears that the hoped-for manufacturing driven recovery is not likely to materialise in the near term.

“Furthermore, the rebalancing of the economy towards export-driven manufacturing seems increasingly unlikely as long as demand from the UK’s main trading partners remains subdued.”

The improvements in exports were driven by an encouraging growth in trade with countries outside the eurozone, such as the United States and China, with products for the car, oil and aircraft industries in strong demand. Rob Harbron, an economist at the Centre for Economics and Business Research, said: “While today’s releases provide some good news for UK exporters, risks remain to the outlook.

“Global growth is slowing, putting downward pressure on export prospects, while underlying fragility in the production industries is likely to remain.”

He added that the Bank of England may still need to pump more money into the economy following last week’s £50bn boost to its quantitative easing scheme.

Recent data on the UK’s services sector showed that it endured one of its worst months in the past three years in June. The Markit/CIPS Purchasing Managers’ Index (PMI) for services sank to an eight-month low of 51.3 from May’s 53.3, despite firms cutting prices and running down existing orders.