Friday 21 October 2016

Surprise as UK output clocks up biggest gain in years ahead of crucial EU vote

Published 09/06/2016 | 02:30

Production posts biggest monthly gain in almost four years
Production posts biggest monthly gain in almost four years

The weak pound was the likely driver after UK industrial production posted its biggest monthly gain in almost four years in April as manufacturing surged.

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The surprise bounce in UK industry is likely to reflects the benefits of a weak pound to producers there. Sterling has been volatile ahead of this month's vote on whether the UK will leave the European Union, including weakening during much of April.

Monthly output data can be volatile, but Britain's apparent gains highlights the challenge for Irish exporters, whose goods and services must either come down in sterling prices or risk losing ground to British rivals.

Output rose 2pc from March, when it gained 0.3pc, figures from the Office for National Statistics published Wednesday show. Economists in a Bloomberg survey had predicted no change. However, UK factories increased production by 2.3pc in April, which was also the biggest gain since July 2012.

The figures will boost hopes for the second quarter after two consecutive quarters of falling industrial output. The data contrast with surveys showing lackluster activity as the referendum on European Union membership and ailing global growth take their toll.

The pound was little changed at $1.4557 as of 9:42am London time.

The main driver behind manufacturing in April was the pharmaceuticals sector, where output rose 8.6pc - the largest increase since February 2014 - mainly on exports.

Domestic demand boosted car production. Overall, 10 out of 13 manufacturing sectors increased production in April.

There was also a 3.9pc jump in gas and electricity production as colder temperatures increased demand for energy.

Oil and gas extraction fell 1.3pc.

Industrial production rose 1.6pc from a year earlier, while manufacturing increased 0.8pc. In the latest three months, output climbed 0.7pc and 0.1pc, respectively.

Data on Tuesday showed German industrial production rebounded in April, while in Spain, it was unchanged from the previous month.

Despite the latest figures, the overall British economy recorded a slowdown in growth in the first months of the year, largely due to uncertainty over the upcoming referendum on whether the country remains within the European Union, according to an overwhelming majority of analysts in a Reuters poll.

In the first three months of this year gross domestic product expanded 0.4pc, down from 0.6pc at the end of last year. According to the latest poll, taken in the past week, GDP will grow just 0.3pc this quarter.

All but four of the 21 economists in the poll who answered an extra question said the slowdown was "quite a bit" or "nearly all" due to uncertainty ahead of the referendum. Four said "not much" and none said "not at all".

"Uncertainty, uncertainty, uncertainty - that's the key word," said Mikel Milhoj, economist at Danske Bank.

(Additional reporting Bloomberg and Reuters)

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