July 9: The UK manufacturing output numbers for May are remarkably soft. Rather than rise 0.4%MoM as expected by the market, which seemed fully justified on the basis of the CBI industrial trends numbers and the manufacturing purchasing managers’ indices, it actually fell 1.3%MoM. This is the biggest drop since January 2013 and was broad based with 10 out of 13 sub-sectors reporting falls in output.

Utilities output rose 3.8% while mineral extraction rose 0.8% giving a total industrial production figure of -0.7% versus a 0.3% increase consensus forecast. Coincidentally, it follows on from a big downside miss on the German industrial production numbers yesterday so this could hint at a wider spell of softness in manufacturing.

Given that production industries account for 15.2% of the output approach to calculating GDP, this suggests that we may not necessarily see a pick-up in 2Q GDP growth to 1.0%QoQ as we expect, from 0.8% in 1Q14.

However, we have our doubts on today’s number given the strength in hiring within the sector and the fact manufacturing confidence is up at 40-year highs and, according to key surveys, business order books are at such high levels. Consequently, we wouldn’t be surprised to see revisions and/or a strong bounceback in June.

James Knightley, ING

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