UK manufacturing output dropped in May, ending a run of strong data and denting hopes of a smooth and balanced recovery.
The broader measure of industrial production fell 0.7 per cent between April and May, led by a decline of 1.3 per cent in the manufacturing sector.
This was the first monthly decline in the overall measure since January, and the largest since August 2013.
David Tinsley, an economist at BNP Paribas, said the figures were a “dose of reality” after a run of “heady” UK data and a “relatively large disappointment”.
Modest gain
The dip surprised the markets, which had been expecting a modest gain, and sterling slipped to its lowest level in five days, falling from $1.7135 to a session low of $1.7089.
The figures were in stark contrast with a run of strong survey data, notably the recent Markit Purchasing Managers’ Index which suggested that Britain’s factories were enjoying one of the best periods of growth in 20 years.
Kevin Daly, economist at Goldman Sachs, said that, given that other European countries, notably Germany, Sweden and Spain, had also seen declines in official manufacturing data, the weak reading was "highly likely" to be a blip.
Rebound
This could be related to statistical adjustment processes, he suggested, adding that he expected a rebound in June.
Neil Prothero, deputy chief economist at manufacturers’ organisation EEF, said while monthly data could be volatile, the figures were a reminder that manufacturers “continue to face a number of headwinds, not least subdued external demand across Europe”.
Sterling’s strength, up around 8 per cent on the year against the euro and 14 per cent against the dollar, could also be a factor. – (Copyright The Financial Times Limited 2014)
