May 12, 2011 / 8:53 AM / 9 years ago

Instant view - March industrial output up less than expected

LONDON (Reuters) - Industrial output rose much less than expected in March, as ongoing maintenance in oil and gas fields limited a bounce from a sharp fall in February, official data showed on Thursday.

The figures doused hopes for an upward revision to preliminary data showing the economy expanded by 0.5 percent in the first quarter, although the Office for National Statistics said the impact on the GDP figures would be minimal.

Nonetheless, the figures indicate that industrial activity is slowing from its heady pace last year and shows Britain’s economic recovery was sluggish in the first three months of this year.


- Smallest yy rise in industrial output since February 2010, when it fell 0.3 percent

- Smallest 3mth/3mth rise in industrial output since August 2010, when it fell 0.1 percent. It was the smallest rise for a calendar quarter since Q3 2009, when it fell.

- The ONS said some maintenance work on oil and gas fields continued into March, limiting the bounceback from a sharp fall in February.


“It’s a confirmation of what Mervyn King was talking about yesterday — that the path of recovery is quite uncertain. The number is a disappointment, it’s a bit weaker than expected, but in itself it doesn’t imply a downward revision to Q1. If anything, in our view the risk to the final estimate is probably on the upside despite today’s disappointing number.”


“The IP numbers were a bit weaker. We thought there was going to be some rebound in mining and quarrying that had fallen very sharply the previous month.

“The question now is what happens in April, there is a lot of uncertainty because of the impact of the Royal Wedding. Even if there is a rebound in May after a large fall in April we could still see weaker manufacturing output within GDP.”


“March’s industrial production figures pour more cold water on hopes that the sector will be able to keep up its recent support for the overall economic recovery.

“Admittedly, there were some positives in the breakdown. Manufacturing output rose by 0.2 percent. And the failure of oil and gas extraction to bounce back following its sharp 7.8 percent fall in February (it rose by just 0.6 percent) could just be a matter of timing.

“Nonetheless, the bigger picture is that the level of industrial production is still below that seen at the start of the year.

“And while the figures in themselves do not suggest that the preliminary estimate of Q1 GDP growth will be revised materially, the weak end to the first quarter sets the sector up to make only a small contribution to GDP growth in Q2.

“What’s more, the recent weakness of the manufacturing surveys suggests that it is likely that the industrial recovery will continue to slow in the months ahead.”


“UK industrial production has disappointed again. The most likely reason the market got it wrong was that the oil and gas component failed to bounceback as maintenance shutdowns in the fields continued longer than expected.

“Given the surprise drop in the purchasing managers’ indices this report is likely to add to the caution in some quarters about the sustainability of UK growth.

“Indeed market expectations have swung back to favouring January as the timing of the first rate hike after having moved to pricing in December after yesterday’s BoE Inflation Report.

“However, given the oil and gas shutdowns are the main source of weakness we still expect IP to recover.

“Furthermore, we still favour November on the basis that inflation will rise sharply in the next few months, employment is rising and so long as the economy continues to grow the case for removing ultra-loose monetary policy will gradually build.”


“The fact that manufacturing output only rose 0.2 percent month-on-month in March after being flat in February raises concern that the sector could be coming off the boil — although it should be noted that manufacturing output still expanded 1.1 percent quarter-on-quarter in the first quarter.

“Manufacturers have been benefiting from decent orders both at home and overseas, the competitive level of the pound and an ongoing rebuilding of stocks after they had been slashed during the recession.”

“April surveys from the CBI and, especially, the purchasing managers also suggest a loss of momentum in manufacturing and there is significant concern that manufacturers will find life increasingly challenging over the coming months as stock rebuilding wanes and tighter fiscal policy weighs down on domestic demand.

“And while global economic activity currently looks decent, there is the risk that it could be hit by high oil prices.”


“Today’s figures were bang in line with the growth rate implied in the first quarter 2011 preliminary GDP estimate. As a result, there is no reason to expect any significant revision to first quarter 2011 GDP growth at this stage.

“But with output having been flat in February and only increasing at such a modest pace in March, it appears that manufacturing growth is moderating back to more ‘normal’ levels, and looking ahead, the sector is likely to make a smaller contribution to GDP growth than in recent quarters.

“However, the fortunes of the economy will be far more heavily reliant on developments in the services sector. And on that front, there is precious little in the way of good news.”


“Mainly facing upwards, close to expectations, I think further gains are likely next month based on what we’ve seen in the survey.

“The IP number is a bit weaker than expected — we were going for 0.9, the outturn was 0.3. The reason there is that the expected recovery in oil and gas extraction has hardly started.

“Based on the preliminary Q1 GDP numbers, we would’ve expected a stronger bounce in that oil and gas figure in March. If it’s delayed till April or May, then of course it will help the Q2 GDP figure.”


“It’s a bit disappointing. The manufacturing was only a fraction below the forecast and for the underlying state of the sector that’s a better gauge.

“The wider industrial production measure is affected by the highly volatile energy component, where we thought we would see some rebound. Arithmetically this does not look like enough to lower the Q1 GDP estimate but it will bring about a small drag.”


“With UK exports to non-EU countries languishing, British manufacturing is now at risk of backsliding on the real gains the industry has made over the last 18 months.”

“Investment levels in the sector remain below where we would expect them to be at this stage in the recovery and manufacturers remain cautious in the face of, in some cases, crippling input prices. However, we are seeing many good news stories emerging in the areas we do well as a nation, such as food and drink production and defence.”

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