UK industrial production bounces back thanks to energy rebound
UK industrial production in November was much better than expected, data from the Office for National Statistics confirmed on Wednesday, with a strong rebound in North Sea oil and gas output and a cold snap driving heating demand.
ONS revealed that UK industrial production rose 2.1% in November compared to October and 2.0% versus the same month last year, which was more than double the respective consensus forecast and reversed the falls from the preceding month.
As well as a strong rebound from manufacturing production, the surge was driven by a jump in output from the mining and quarrying category, as the North Sea's giant Buzzard field resumed production after temporary closure in October, while energy supply output jumped on the back of a cold weather snap boosting heating demand.
Manufacturing production was up 1.3% month-on-month, beating the consensus estimate of 0.50% and a turnaround from the revised 1% decline from the previous month.
Year-on-year manufacturing production rose 1.2% after falling 0.5% in October, better than the expected rebound of 0.4%.
Seasonally adjusted construction output declined 0.2% on the previous month, extending the 0.6% fall in October when the market had expected a bounce back of 0.2%. One upside was a 1.2% month-on-month increase in new house building.
As part of the ONS's new 'theme day', it also revealed the total UK trade deficit widened to £4.2bn in November from £1.5bn in October, but remained on course for a narrowing in the fourth quarter compared to the third.
Sustainable growth?
Economist Sam Tombs at Pantheon Macroeconomics said the effect of the surges in oil and energy sector output together accounted for 1.2 percentage points of the 2.1% increase in industrial production, but cautioned that "they do not represent sustainable growth momentum", with manufacturing output's underlying trend "only slightly upwards".
Despite the rebound, industrial production in the fourth quarter will be lower than the third, Tombs said, if the month-to-month increase in production is smaller than 0.2% in December.
"We think production likely fell in December, despite the improvement in manufacturing surveys at the tail end of 2016, because unusually warm temperatures in December likely depressed output in the energy supply sector. As a result, industrial production likely fell for the second consecutive quarter in Q4 - technically marking a recession for the sector - leaving the services sector as the sole locomotive of growth at the end of last year," Tombs said.
Chris Williamson at Markit said the data from ONS, including trade balance numbers, added to signs that the weaker pound is benefiting the economy, especially in terms of exports, which rose 2.8% in November.
“The conclusion from the trade picture is there we are now seeing some tentative evidence of the economy benefiting from the improved international competitiveness resulting from the weaker pound, but the official data are still not as upbeat as business surveys such as the PMI, which depict a considerably more buoyant picture of export performance."
On construction data, Howard Archer at IHS noted that construction output was down 0.1% in the three months to November compared to the three months to August and so will need to have jumped 1.5% month-on-month in December to have avoided contraction in the fourth quarter.
"This cannot be ruled out though as construction output can be highly volatile from month to month and December survey evidence from the purchasing managers was improved."