PracticeConsultingManufacturing falls signal economic gloom

Manufacturing falls signal economic gloom

The downturn in the manufacturing sector will have a knock-on effect on the rest of the economy, according to a leading economist.

According to the latest figures from the Office of National Statistics, the UK’s manufacturing industry has shown negative growth figures for the second quarter running, which means the sector is now theoretically in recession.

Manufacturing output to June fell by 2% compared to the previous quarter and 1.3% compared to last year.

The most significant drop was in the electrical and optical equipment industries, which showed a decreased output of 7.9%, with the optical networking mobile phone and computer manufacturing sectors dropping the most.

Maurice Fitzpatrick, head of economics at Tenon, told Accountancyage.com that this recession was widely expected, adding that the news could have a ripple effect on the rest of the economy.

Although manufacturing accounts for one-fifth of the UK’s economy and the economy as a whole has expanded by 0.3%, Fitzpatrick explained that ‘the worry is that the manufacturing industry buys services from the rest of the economy’.

He said that this could lead to a falling off in the service sector causing the gloom to wash over into service sector.

Although Fitzpatrick does not believe this is a sign of an impending recession, ‘it is certainly not helpful for the economy as a whole,’ he said.

‘If the whole economy grew in the third quarter by almost ?1% the trend suggest that we might be looking at a recession this winter. That has to be the worry.’

He added that the Bank of England’s decision to cut interest rates did not make a big difference for the troubled sector.

‘The strong pound is the biggest single factor,’ he said, ‘it makes exports expensive abroad.’

He added it put UK companies in a position where they were having difficulty competing in their home market due to the cheap cost of imports.

He said: ‘The British consumer is getting a wonderful deal because imports are cheap. This, he added could explain why consumer demand has not dropped. The ONS figures show that the output of non-durable goods, such as clothing, has risen by 0.4% quarter on quarter.

LinksFDs split on outlook for UK economy

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