UK Manufacturing Output March & 1st Quarter 2023: At the end of last week, too late for our publishing deadline, the Office for national Statistics (ONS) published the manufacturing output data for March and, of course, with that the figures for the 1st quarter of the year.
The March figures show that manufacturing output increased by +0.7% compared to February with 7 of the 13 sub-sectors seeing an increase in activity – most notable among these were pharmaceuticals and computer, electronic & optical products. However, we prefer to concentrate on the quarterly data as it is less volatile – this shows a quarter-on-quarter increase in manufacturing output of +0.6% but it is -1.9% lower than the level of 12 months ago (Q1-22). On the quarterly measure which is benchmarked to the 4th quarter of 2019, manufacturing output is 104.2% of its pre-pandemic level.
At the sub-sector level, output of the capital goods industries grew by +1.0% compared to the previous quarter but was still -0.6% lower than a year earlier. With the growth at the start of 2023, output of this sector on a quarterly basis is now back above its pre-pandemic level although the value of 100.5% is the lowest of the major sub-groups of manufacturing. Consumer non-durable goods was the only sub-group to see output fall compared to Q4-22 but at the same time, it is the only one where output is higher than a year ago (+1.9%) reflecting different timings of growth between this group and the other sub-sectors.
At the industry level, 3 of the 4 that we cover recorded a quarter-on-quarter growth – the exception was the machinery industry where output was -0.2% lower than the previous period and -5.9% below the level of a year earlier. However, thanks to strong growth in the recovery from the pandemic, the latest figure for output is 109.6% of its pre-pandemic level.
At the other end of the spectrum, the strongest growth was for metal products where output increased by +6.5%, although this still leaves it -3.7% lower than a year ago and at only 89.3% of its pre-pandemic level.
Between these in terms of the quarterly growth rate are the automotive and aerospace industries although they are in very different places on a longer-term basis. Output of the automotive industry was +1.0% higher than in the previous quarter but is -2.0% below a year earlier and at only 71.0% of its pre-pandemic level. While much of this weakness in recovering from the pandemic is down to global shortages of electronic components, there are also some structural factors at play with two major factory closures (Ford in Bridgend and Honda in Swindon) since the start of 2020.
Finally this time, the aerospace industry saw output edge up by +0.3% in the latest quarter and it was +1.1% higher than a year ago, leaving output at 116.1% of its pre-pandemic level.
You can download the ONS Statistical Bulletin from their web-site at https://www.ons.gov.uk/releasecalendar (12 May) or request it from MTA; we also have an analysis of the key industries which is available to members – please contact Geoff Noon ([email protected]) if you would like these charts.
UK GDP, March and 1st Quarter 2023: The first estimate of GDP is produced by the ONS using the output data for the main sectors of the economy – services, manufacturing and construction. Although GDP fell by -0.3% in March following a flat February, a small upward revision to the January figures means that across the 1st quarter, the UK economy is estimated to have grown by +0.1%. This means that the UK economy is only +0.2% larger than it was a year earlier and it is still -0.5% below its pre-pandemic level (Q4-19), although if you use the monthly series which is based on February 2020 which has a lower starting point, the March number is +0.1% larger than “before” the pandemic.
We will concentrate on the quarterly figures, but it is worth noting that the service sector contracted by -0.5% compared to February; this was partial balanced by the increase in manufacturing that we have noted above and growth of +0.2% in the construction sector.
On a quarterly basis, the growth in manufacturing output was more than matched by the construction sector where output expanded by +0.7% – this is the 6th consecutive quarter of growth. This was driven by repair & maintenance activity which grew by +4.9% with all three sub-sectors seeing an increase, while new work activity fell by -1.9%.
The largest sector of the economy is services and this is he weakest in terms of growth at the moment, although lie the other sectors, this reflects a mix of trends with 7 of the 14 sub-sectors seeing growth and the other 7 having lower output than in the previous quarter. Output of consumer-facing services contracted by -0.4% while other services saw a rise of +0.2%.
The largest positive impact on the overall sector figure came from information & communication sub-sector (by +1.2%) thanks to improvements for the computer programming, consultancy & related activities and telecommunications industries. There was also an important positive contribution from administrative & support service activities (+1.3%).
However, on the negative side, output fell in the education (-0.7%), health (-0.5%), public administration & defence (-0.7%), and transport & storage (-1.0%) groups of industries. All these areas were affected by strikes during the 1st quarter of the year, although giving precise estimates of the impact of industrial action in isolation from other factors is not possible.
There are more details in the range of ONS Statistical Bulletins which can be downloaded from their website at https://www.ons.gov.uk/releasecalendar (12 May) or on request from MTA.
UK Investment, 1st Quarter 2023: The third main element of the GDP figures is the data on business investment (we will cover trade later in the month). The headline figure shows that total business investment grew by +0.7% compared to the previous quarter and by 3.2% over the level of a year earlier. The 4-quarter rolling total (Q2-22 to Q1-23 inclusive) was +8.0% higher than in the previous block (Q2-21 to Q1-22).
We are still without the breakdown of this by industry – it has been promised for a return alter in the year when the ONS does its major re-basing exercise – but we do have the breakdown across 5 asset types – dwellings, transport (vehicles), IPP, ICT equipment & other machinery and other buildings & structures & transfer costs. The 4th of these – ICT & Other Machinery (ICT&OM) – is of most interest to us as this is where spending on manufacturing equipment will be classified and because it was the main target of the super-deduction policy.
Even though this data is also seasonally adjusted, the series can be quite volatile and while quarter-on-quarter growth of +17.6% sounds impressive, it mainly reflects a sharp fall in the 4th quarter of 2022 which looks to have been a function of the seasonal adjustment as the non-adjusted figure shows increases in both Q4-22 and Q1-23. Despite this, the seasonally adjusted figure for spending on ICT&OM was +1.9% higher than a year earlier and at the highest since this series began in 1997. The rolling 4-quarter total increased by +10.6% compared to the previous period.
With the super-deduction scheme finishing at the end of the 1st quarter of 2023, we should expect a fall in investment over the next couple of quarters, especially for the ICT&OM category – the other asset types have other negative factors which will probably weaken the as well. Bearing in mind that this data tracks capital expenditure rather than order placement, we will be looking at this data later in the year and into 2024 to see if the full capital expensing has a similarly positive impact on investment.
You can download the ONS Statistical Bulletin and the investment data files from their website at https://www.ons.gov.uk/releasecalendar (12 May) or request if from MTA.