Manufacturing a ‘false impression’ of output on the rise

By SCOTT REID
Published on 10/07/2012 20:56

ANALYSTS urged caution on Tuesday, saying the economy faced an uphill struggle, despite news of a better-than-expected performance by UK manufacturers.

Official data showed that manufacturing output rose in May as an extra working day due to a postponed public holiday allowed for more work.

The 1.2 per cent increase defied expectations of a further deterioration after a shock 0.7 per cent drop the previous month. The Office for National Statistics said a public holiday usually scheduled for the end of May was moved to June for the Queen’s diamond jubilee, for which yet another extra holiday had been added. Those two holidays are likely to drag on June’s output figures.

Separate data revealed that the UK’s trade deficit narrowed in May as exports increased at their fastest pace for more than two years, boosting hopes that the sector can help the UK emerge from its double-dip recession.

However, economists warned that moving the bank holiday from May to June for the diamond jubilee may have flattered the figures. They pointed out that the UK economy was still flagging amid weak domestic demand and the fallout from the eurozone debt crisis.

Richard Driver, analyst for foreign exchange operator Caxton FX, said: “These figures are the best we have seen in many months and go against the downtrend in recent UK growth figures, however they give a bit of a false impression.

“If you look at the effects of the Jubilee celebrations on production ten years ago, next month’s figures are likely to be very ugly indeed.”

IHS Global Insight economist Howard Archer added: “UK manufacturers are clearly facing a very challenging domestic and international environment.”