Strong pound hits factory output in surprise setback as economic recovery remains fragile
Factory
output slammed into reverse over the spring in a surprise setback to the
recovery in the UK economy, figures showed today.
The
Office for National Statistics said manufacturing output fell 1.3 per
cent in May - the biggest fall since January 2013 and far worse than an
expected increase of 0.4 per cent.
Analysts
said the surprise slump served as a stark reminder that the recovery
remains fragile despite the dramatic turnaround in Britain’s fortunes in
the last 18 months.
Setback: The surprise slump caught analysts
off-guard, and serves as a stark reminder that the recovery remains
fragile despite the dramatic turnaround in Britain's fortunes in the
last 18 months
David
Tinsley, UK economist at BNP Paribas, said: ‘The heady UK data flow had
a dose of reality today, with an unexpectedly large fall in industrial
production in May.’
It
is thought that the strong pound, which has jumped 15 per cent against
the dollar and 10 per cent against the euro in the last 12 months, may
be taking its toll by driving up the price of goods made in Britain.
Samuel
Tombs, senior UK economist at Capital Economics, said: ‘The stronger
pound might be starting to slow the revival of the manufacturing sector.
Nonetheless, there is still a good chance that the overall recovery
gathered pace in the second quarter.’
The
economy grew by 0.8 per cent in the first three months of the year and
analysts are still expecting another strong quarter of growth between
April and June despite the setback for manufacturers.
Martin
Beck, senior economic advisor to the EY Item Club, said: ‘The makers
may have hit a hurdle. Weaker demand from overseas, as well as the
headwinds presented by the strength of sterling in recent months, are
likely to have contributed to the poor performance of the sector.
‘However,
the latest figures should not be a serious cause for concern. Overall,
today’s numbers do not change our expectations of GDP growth of 1 per
cent in the second quarter, exceeding the pace seen in the first three
months of the year.’
Chris
Williamson, chief economist at Markit, said the figures ‘add more
confusion to the debate as to whether the Bank of England should start
raising interest rates later this year rather than delaying until next
year’.
The
Bank is widely expected to leave rates unchanged this week having held
them at an all-time low of 0.5 per cent since March 2009.
But
Governor Mark Carney has warned that a rate rise is on the way – with
many observers expecting a hike late this year or early next year.
David
Kern, chief economist at the British Chambers of Commerce, said:
‘Manufacturing exporters must now cope with a much stronger pound,
making their products more expensive for overseas customers. Exporters
have so far shown resilience however, the situation could become serious
if sterling strengthens much further.
‘This reinforces the arguments for the Bank to delay increases in interest rates until it becomes absolutely necessary.
‘The
recovery must be given time to consolidate and gather more momentum.
The risks to the economy of premature increases in rates are much
greater than the risks of waiting a little longer.’
Posts
0 comments:
Post a Comment