U.K. Manufacturing Recovery Hangs on

Manufacturing output in the U.K. came to a standstill in February, the same as in January, but upward momentum more broadly continues in place.

Manufacturing output is falling by 2.3% over 12 months, rising by 1.4% at an annual rate over 6 months and then slowing to a gain of 0.4% over 3 months – but it is still rising. This sequence falls short of being an ongoing sequential acceleration; however, the results for output are clearly on the upswing and better than what they've been over the past year by a long shot.

In February, consumer durables output rose by 4.3%, consumer nondurables output fell by 1.1%, intermediate goods output was flat while the output of capital goods moved up to 1% after falling 0.7% in January.

Sequential growth characteristics by sector The sequential growth rates for output shows consumer durables output continues to fluctuate. Output is flat over 12 months, declines by 5.3% at an annual rate over 6 months, then expands at a 2.7% annual rate over 3 months. Consumer nondurable goods likewise have a trendless profile with output lower by 0.3% over 12 months, rising at a strong 4.7% annual rate over 6 months, then falling at a 3.9% annual rate over 3 months. Intermediate goods show acceleration, rising from a 5.4% decline over 12 months to register a 4.7% annual rate drop over 6 months, then climbing to a 1.2% annual rate gain over 3 months. The highlight of industrial production is capital goods which falls short of having a clear sequential acceleration; nonetheless it's quite clear that output is progressing toward that goal. Capital goods output is lower by only 0.1% over 12 months, up at a 5.5% annual rate over 6 months, then, the 3-month annual rate slips slightly to 4.8%. The 3-month and 6-month growth rates are both still quite strong and impressive.

In the quarter-to-date, U.K. output is still struggling. Manufacturing output 2 months into the first quarter is falling at a 0.6% annual rate, durable consumer goods output is falling at a 2.5% annual rate, nondurable consumer goods output is falling at a 7.2% annual rate, but the output of intermediate goods is rising at a 0.9% annual rate and the output of capital goods is rising at a 3.4% annual rate. For the time being, consumer goods industries are having the most difficult time finding the road to recovery.

Since COVID struck, U.S. industrial production has been struggling and of course Brexit also overlaps with this adjustment. The U.K. is still undergoing its adjustment to its Brexit exit. But compared to January 2020, overall manufacturing output three years later is only higher by 0.7%. Consumer durable goods output is higher by 1.5%, nondurable consumer goods output fares much better, rising by 8.1% from its level of January 2020. But on this timeline, the output of intermediate goods is lower by 1.6% and the output of capital goods is also lower by 2.8%. All in all, COVID and post-COVID has been a difficult time for industrial production in the U.K.

The table also shows performance of a few industries in the U.K. Food, beverages & tobacco show declines in February along with textiles & leather industries, electricity, gas & water (utilities) where output fell by 2.2%. However, motor vehicle & trailer output rose by 2.6% and output in mining & quarrying rose by 3%.

Sequential growth rates for these industries show negative growth rates on all horizons for food, beverages & tobacco. There is sequential contraction underway for textiles & leather where there's an increase of 3.2% over 12 months, but then a decline at a 3% annual rate over 6 months, then a decline at a 7.8% annualized rate over three months and a clear sequential deterioration and contraction for textiles & leather. Motor vehicle & trailer output, on the other hand, are volatile and largely growing; sector output is down by 0.8% over 12 months but growing at a 24.5% annual rate over 6 months and at a 3.3% annual rate over three months. Mining & quarrying shows an 8.9% decline over 12 months, a 4% annual decline over 6 months, and a drop at a 19.6% annual rate over 3 months. Output in this sector is clearly declining on all the horizons but without a clear trend. Utilities output in the U.K. just declines in all three horizons although once again without any clear trend; the decline over 12 months is 5.4% while the annualized decline over 3 months is only at a 1.9% pace.

Industries QTD On a quarter-to-date basis, only one of these industries shows an increase of any significance; that's motor vehicles & trailers where output is up at a 1.4% annual rate; food, beverages & tobacco has a minor 0.1% uptick in the QTD. Utilities output is falling at a 2.8% annual rate, textiles & leather output is falling at a 4.1% annual rate, and mining & quarrying output is falling at an 18.7% annual rate.

The COVID period These industries have also been challenged in the COVID period. Among them, only food, beverages & tobacco shows an increase from January 2020; that industry shows an increase of 8.7%. On the other hand, textiles & leather is lower by 9%, motor vehicle & trailer output is down by 29.8%, mining & quarrying is off by 15.8%, and even utilities output – which is unstockable and usually experiences trend growth- is down by 0.7% over this three-year period.

Summing up The U.K. industrial recovery seems to be holding on but perhaps only by its fingernails. Overall output has been flat in each of the last two months while the quarter-to-date data portray this as a battle between weakness and the consumer sector against strength in capital goods and intermediate goods output. The trend of rising output may finally have met its match as the Bank of England continues to raise rates in the face of an inflation problem. Europe generally has an inflation problem, and the ECB is also raising rates and affecting output negatively in the regions immediately surrounding the U.K. Ongoing war between Russia and Ukraine provides a backdrop of instability for everything that's going on. However, there is some good news as the EU the United Kingdom have reached an agreement on how to deal with Ireland and its special circumstances of being dividend and operating under mixed economic systems in the wake of Brexit.