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ECONOMIC DATA THIS WEEK

UK Manufacturing Output, 2nd Quarter of 2019:  The Office for National Statistics (ONS) released the June data and, therefore of course, the figures for the 2nd quarter of 2019 this morning.  The headline is that manufacturing output fell by -2.3% compared to the previous quarter and was -1.0% lower than a year earlier.  However, while there is evidence of slowing activity in some sectors, the headline figures are affected by Brexit in a couple of ways.  The 1st quarter of 2019 was strengthened by the well-publicised stock-building that drove up output in sectors such as chemicals, pharmaceuticals and food & drink - this process then unwound in the 2nd quarter as output returned to more “normal” levels.  The 2nd quarter data was also affected by the automotive industry moving its maintenance shutdowns from the summer to April in case of supply chain disruption around the original Brexit date of 29th March - the effect of this has been exaggerated by the seasonal adjustment process, but it has clearly led to a fall in output in the 2nd quarter (this should be reversed in Q3 to the extent that the usual maintenance shutdowns won’t occur).

These factors are reflected in the sub-sector data where Capital Goods saw output -3.2% lower than in the previous quarter and -4.3% down compared to a year earlier.  The worse figure for the longer-term trend is an indicator of the extent of the decline in output in the automotive industry which the monthly data suggests is on a downward trend after allowing for the change in timing of the maintenance shutdowns.

This then is a good place to start our look at the data by industry;  output of the automotive industry was -9.5% lower than in the 1st quarter of 2019 and -14.0% down on a year earlier (2nd period of 2018).  The monthly data suggests that although the shutdowns were largely in April, it took until June for the “bounce” to fully kick in.  Data for this industry will continue to be difficult to read as we go through the rest of the year as the seasonal adjustment struggles to cope with higher than expected output in July/August, but the detailed output figures from SMMT suggest that both car and engine output are likely to be down quite significantly in 2019.

It is hard to find any positive news in the industry figures, with even Aerospace only recording an unchanged quarterly output index (that was therefore -1.0% lower than a year earlier).  The Machinery industry saw output fall by -1.8% over the previous quarter with a decline of -5.9% compared to a year earlier, while the Metal Products industry (about half of which is sub-contractor activity) saw output fall by -2.1%, although this level was still +0.7% higher than a year earlier.

You can download the ONS Statistical Bulletin from their web-site at https://www.ons.gov.uk/releasecalendar (09 August) or request it from MTA;  we also have an analysis of the key industries which is available to members - please contact Geoff Noon (gnoon@mta.org.uk) if you would like these charts.

UK GDP, first estimate for 2nd Quarter 2019:  The ONS’s first estimate for the UK economy show a fall of -0.2% compared to the 1st period of the year;  with growth a year earlier having been relatively strong, the annualised rate fell to just +1.2%, matching the rate recorded in the first quarter of 2018 but, otherwise, the slowest since the 2nd quarter of 2012 (which was partly distorted by the treatment of Olympic related activity).

Whilst this sharp turnaround from the significant growth in the 1st quarter is largely due to the pre-Brexit stock-building activity and to the change in timing of factory maintenance periods in the automotive industry, there is also evidence of slowing in other parts of the economy.  The monthly data shows that the economy was flat in June, while there have been some revisions to the other months within the 2nd quarter.

Having covered manufacturing in the previous item, the trends for the other major sectors of the economy show that services expanded by only +0.1% (quarter-on-quarter), while construction contracted by -1.3% and agriculture by -0.4%.

On the expenditure measures of the economy, the net trade situation improved, although this was mainly because the 1st quarter was significantly distorted by movements (mainly imports) of non-monetary gold.  However, there has also been a further fall in goods exports, including machinery, transport equipment and chemicals.  We will cover this in more detail next week.

The other element of concern in the 2nd quarter data is investment;  total business insurance fell by -0.5% compared to the 1st period of the year and was -1.6% lower than a year earlier, with the rolling 4-quarter trend declining by -1.7%.  We don’t have detailed breakdown by sector or industry at this stage, but the ONS does give a figure for spending on “ICT & Other Machinery” - the seasonally adjusted total for the 2nd quarter was the lowest since the start of 2017 and fell by -3.1% compared to the 1st quarter of 2019;  the 4-quarter rolling trend showed a fall of -2.3%.

There are more details in the ONS Statistical Bulletins for June GDP and the Quarterly Estimate for the 2nd Quarter (April to June) which you can download from their web-site at https://www.ons.gov.uk/releasecalendar (09 August) or request from MTA.