The Office for National Statistics this morning announced a surprise fall in UK production output for the month of February.
The ONS estimates total industrial production to have contracted by 1.2% in February, versus city consensus of growth of 0.4%.
Within the details, the manufacturing sector stagnated on the month, while there was a sharp 7.3% fall in mining quarrying, oil and gas extraction.…
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The latest data suggests continued weakness in consumer confidence is feeding through to production for the household sector. Manufacturing in consumer durable and non-durable goods both contracted, as we see a weakening trend emerge. However, the manufacturing of capital goods, associated with investment, continue to perform well, with annual growth now standing at 10.6%.
The latest data on production highlights uncertainty over the strength of the economic recovery at present. Very poor consumer confidence is hampering growth as households wait to see the extent of fiscal tightening and planned public sector job cuts. In our view, this represents a temporary slowdown for the UK economy, which may last until the summer. As the impact of austerity plans hits, we expect households to feel more comfortable with their own finances, and for the recovery to re-accelerate. Meanwhile, today’s industrial production data suggests that GDP estimates for the first quarter are likely to disappoint both the Bank of England and the Office for Budgetary Responsibility – reducing the likelihood of a rise in interest rates tomorrow, or indeed in this half of the year.
Source: ETFWorld – Schroders
