Retail and manufacturing provide glimpse of sun in economic gloom

By MARTIN FLANAGAN
Published on 22/06/2012 00:00

THE troubled UK economy has been handed a double-barrelled boost of better factory performance and a rebound in retail sales.

The CBI’s industrial trends survey has shown an improvement in orders, confounding City economists’ forecasts of weaker figures.

The latest figures from the Office for National Statistics (ONS) revealed that retail sales volumes rose 1.4 per cent in May from April.

This was above consensus forecasts for a rise of 1.2 per cent, and gave a year-on-year retail sales increase of 2.4 per cent.

The better news came as Scottish Enterprise revealed that Scotland’s manufacturing sector made £20 million of productivity savings in the past year, helping it to capitalise on new products and markets.

In the June industrial trends survey, manufacturers saw an improved end to a very difficult second quarter, with production expectations also picking up.

Of the 459 manufacturers responding, 27 per cent expect to increase their volume of output over the course of the next three months, while 19 per cent expect it to fall.

Ian McCafferty, the CBI’s chief economic adviser, said: “Despite facing continued instability within the eurozone, UK manufacturers have seen a modest rebound in orders from both their domestic and export markets. As a result, firms are expecting output to pick up over the next quarter, although the pace of growth is still expected to be somewhat lower than earlier in the year.”

City economists said despite the better news from smokestack Britain and the high street there was still room for the Bank of England to add more stimulus to the economy in July through another round of quantitative easing (QE). They cited the fall in inflation to 2.8 per cent in May.

Tom Vosa, head of market economics at Clydesdale Bank-owner National Australia Bank, said: “Given the uncertainty over the impact of the diamond jubilee, the CBI survey suggests that while we should see a fall in manufacturing output in May, we could see some stabilisation in June.

“However, the economy is still likely to be flat in the second quarter, and we maintain our forecast of just 0.4 per cent growth this year.”

The better retail sales figures last month followed a slump in April – the wettest on record for that month.

The ONS said the stronger performance in May had been driven by a 3.4 per cent monthly rise in clothes and footwear sales.

It took the annual rise in clothing and footwear sales to 11.3 per cent, the highest since February 2000.

One economist said the standout performance in this sub-sector was “probably driven by unseasonably cold and wet weather as well as discounting by retailers”.

Chiming with yesterday’s manufacturing news, Scottish Enterprise said that it had backed 165 manufacturers north of the Border in more than 200 efficiency initiatives last year.