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Forex News – UK Industrial Production recovering but far from pre-2008 level
December 10, 2013 3:03 pmVideo
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(click to enlarge)
The news that UK industrial production was up 0.4% month-on-month was positive, since it beat consensus expectations of a rise of 0.3%. The annual rate of increase of output for UK industry was 3.2%.
Except for 2010, UK industry has not really contributed to the country’s economic growth. The annual growth rate of industrial output turned positive during September, so the improving growth rate of October could be the start of a positive contribution from industry and manufacturing.
As the chart shows, the index of industrial output collapsed during 2008, losing almost 15%. The damage continued well into 2009 before the sector started a recovery that was not sustained.
Since the 3rd quarter of 2012, industrial output has been rising and it remains to be seen whether this time round the recovery will prove more durable. The signals from business confidence surveys and order books are mostly upbeat so there is hope of more good news – particularly since Britain’s main trading partner, the Eurozone, should post modest growth in 2014. British industry cannot hope to reach its pre-recession levels soon however.
The UK’s economic performance has been surprisingly good in 2013, but it has been mostly reliant on consumption, services and a rebounding housing market and construction sector. Business investment and industry have not so far followed through and these two elements need to reappear in order for the recovery to be truly sustainable.
Another potential problem – mainly for pound bulls – was contained in the trade data published at the same time as industrial output figures. Specifically, they showed a slightly worse-than-expected trade deficit, as exports were hurt while imports rose.
A stronger sterling would further reinforce this trend, possibly creating more problems to the struggling UK industrial exporters.
To sum up, sterling should benefit from the recovery in the UK, but achieving the goal of a ‘balanced’ recovery might be a tall order to ask from the UK economy presently.
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