Plunge in exports brings a touch of realism

Red hot metal being moved across the heavy forge at the Forgemasters Works in Sheffield
Red hot metal being moved across the heavy forge at the Forgemasters Works in Sheffield
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BRITAIN’S manufacturing sector edged ahead in July but a worrying plunge in exports dented recovery hopes, official figures showed.

A 0.2 per cent month-on-month increase in manufacturing built on strong growth of 2 per cent last month, according to the Office for National Statistics (ONS), although UK factory output remains well behind its pre-recession peak.

“A recovery in the manufacturing sector is starting to look sustainable,” said Michael Hartig, head of manufacturing for Barclays in the North.

But separate trade data from the ONS showed the deficit in goods increased from £8.2bn to £9.9bn, reflecting a 9.3 per cent fall in goods exports excluding oil compared to June.

The mixed figures suggest that while manufacturing appears to be sustaining gains from earlier in the year, slowdown in growth in the world’s emerging economies is sapping demand for British products, economists said.

David Kern, chief economist at the British Chambers of Commerce, said: “The larger-than-anticipated increase in the trade deficit is a reminder of the obstacles facing the UK economy as it starts to recover.”

The ONS manufacturing figures showed that while output was up 0.2 per cent in July compared to June, it was behind 0.7 per cent compared to July 2012.

Month-on-month improvements were seen in various sub-sectors including repair, machinery and equipment as well as computer, electronic and optical products. Pharmaceuticals, electrical equipment and chemicals fell.

Total production in July was flat compared to June, with the decreases in energy and increases in water supply attributed to the heatwave.

The weak level of growth in manufacturing output, shown by the official ONS figures, contrasts with recent survey data elsewhere indicating a surge in optimism.

Concerns about exports were highlighted by the trade figures showing that the overall deficit more than doubled from £1.3bn to £3.1bn – with the higher shortfall in the balance of goods traded partly offset by a surplus in services.

A breakdown of the goods figures showed sales to outside the EU fell by 15.8 per cent from £14bn to £11.8bn.

It comes amid fears about the performance of the BRIC – Brazil, Russia, India and China – economies and others like them.

A fall in the value of currency in many of those economies – as investors pull back amid fears of a withdrawal of central bank support in the US – has seen UK exports become less competitive.