UK industrial production shrank in 2015 – The Guardian

Britain’s industrial production slumped 1.1% in December after warm winter weather forced a sharp decline in energy output and the low oil price hit North Sea oil producers.

The manufacturing sector suffered a further fall from an already weak November while mining and quarrying also dropped, fuelling concerns that the slowdown in the US and turmoil on global markets is undermining confidence across the UK’s major export industries.

One analyst described the last year as “dismal” after official figures covering 2015 showed that the recovery in Britain’s industrial sector during 2013 and 2014 came to an abrupt end.

Manufacturing output, which accounts for about 10% of GDP, shrank 1.7% in 2015 compared with the previous year, leaving it still 6.5% below the total it achieved before the 2008 crash.

Chris Williamson, chief economist at financial data provider Markit, said the weakness of manufacturing, where output fell 0.2% in December, was the most worrying feature of the survey data.

“This was the third successive month in which factory output had declined, leaving the size of the manufacturing [sector] unchanged in the fourth quarter compared to the third quarter,” he said.

“The extent to which the UK has failed to rebalance towards manufacturing is further highlighted by the industrial sector as a whole and manufacturing being 9.8% and 6.5% respectively smaller than their pre-recession peaks seen at the start of 2008.”

A similar picture across Europe has emerged after figures on Tuesday showing much weaker industrial output in Germany was matched on Wednesday by a 1.6% month on month drop in French industrial output and 0.7% fall in Italy.

The Office for National Statistics said output in the energy supply sector dived by 5.4% month-to-month, accounting for 0.5 percentage points of the fall in overall production, as demand for heating energy from households and businesses was lower than usual due to the mild winter in much of the country.

Meanwhile, output in the mining and quarrying sector fell by 4%, accounting for a further 0.5 percentage points of the decline.

Samuel Tombs, chief UK economist at Pantheon Macro, said oil producers appear to be scaling back production now that prices have fallen below the marginal cost of extracting it from existing rigs.

He said manufacturers would continue to have a difficult time despite a fall in the pound in recent months.

“Long lags mean that manufacturers won’t feel the full benefits of the recent depreciation of sterling until the end of 2016. Accordingly, the economic recovery is likely to remain entirely dependent on the services sector this year,” he said.

Scott Bowman, a UK economist at Capital Economics, said the UK had ended the year “on a dismal note”, but was more optimistic about the impact of sterling on exports.

“The recent depreciation of trade-weighted sterling and our expectations of a pick-up in world growth in 2016, suggest that the manufacturing sector’s fortunes will improve slightly as this year progresses,” he said.

Dennis de Jong, managing director of currency broker, said an increase in output from larger manufacturers was not enough to return the sector to growth, and reports of underlying staff cuts will be cause for further concern.

“With global financial markets continuing to undergo extreme volatility, we will have to wait to see if the manufacturing sector can build some momentum in the face of weakening demand from emerging markets, not to mention negative headwinds from China,” he said.

UK industrial production shrank in 2015 – The Guardian

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