Factories see output surge but wider industrial picture bleak

MANUFACTURING output rose at its fastest pace in over a year in May, according to official figures yesterday which did little to change economists' guarded outlook for the wider economy.

While factories ramped up production after a royal wedding-related drop in April, there was disappointment that the wider measure of industrial output, which includes oil and gas extraction, failed to fully recoup the previous month's losses.

Britain's manufacturing sector has been one of the few recent bright spots in the economy, although it accounts for less than 15 per cent of total output.

The latest Markit/Cips purchasing managers' survey for the sector, published last week and covering June rather than May, made for sober reading, with growth in activity decreasing to its slowest level for 22 months.

New orders fell for the second successive month, sparking fears that the slowdown in growth will continue.

Victoria Cadman, an economist at Investec, said yesterday: "It still looks pretty likely that industrial production overall will be negative over the second quarter and a drag on Q2 GDP."

Howard Archer, chief UK economist at IHS Global Insight, added: "The underlying impression remains that manufacturers are now finding life more challenging."

The Office for National Statistics (ONS) data showed that manufacturing output rose by 1.8 per cent between April and May, more than making up for a drop of 1.6 per cent the previous month. It marks the biggest monthly rise since March 2010. Overall industrial output, however, rose by a below-forecast 0.9 per cent in May, making up only about half of April's drop. A sharp fall in oil and gas production due to unplanned maintenance work was largely to blame.

Industrial production in the three months to the end of May was down by 1.5 per cent compared to the previous three-month period.

Assessing the strength of the recovery has been complicated by the extra public holiday for the royal wedding on 29 April. In addition, many manufacturers have been hit by supply chain disruptions caused by Japan's devastating earthquake and Tsunami earlier this year.

The ONS said the effects of the Japanese tsunami on UK manufacturing diminished in May.A number of car manufacturers indicated that sales were getting back towards normal levels.

Chris Williamson, chief economist at Markit, described the data as disappointing "given that manufacturing is supposed to be driving the UK recovery".

He expects GDP to rise by between 0.2 per cent and 0.3 per cent in the second quarter of 2011, following expansion of 0.5 per cent in Q1, meaning that it is "increasingly implausible" that the UK government meets its targets for growth and deficit reduction.

Business leaders renewed their call for additional support for manufacturers as the government rolls out its deficit-cutting plans.

David Kern, chief economist at the British Chambers of Commerce, said: "While the recovery is modest, the manufacturing output figures show there is no need for the government to abandon its current fiscal plans.

"However, the economic situation remains uncertain and everything must be done to ensure that there are no setbacks in the months ahead."