The last set of economic figures before the summer budget provided mixed news for George Osborne.
On the upside, industrial production was up by 0.4% in May – the latest month for which data is available – and by 1% between the latest two quarters. Industry accounts for around 15% of the economy and will help boost growth in the second quarter of 2015.
The other piece of encouragement for the chancellor came from the performance of the North Sea oil and gas sector. Higher oil prices and a tax break in the March budget seem to have prompted firms to increase their output. Oil and gas production was up a chunky 7.3% between April and May.
On the downside, the bounce in North Sea output merely recoups some of the ground lost over the past decade. Oil and gas production has fallen by 30% in the past five years.
What’s more, the performance of the energy sector masked another disappointing performance by manufacturing, the single biggest component of industrial production.
Factory output was down by 0.6% on the month and is still almost 5% lower than it was at its pre-Great Recession peak in early 2008. The strong pound is making UK exports less competitive, blunting the impact of a pick-up in demand from the euro zone, the main market for British manufactured goods.
It is a familiar story. The economy is growing but in an unbalanced way. Manufacturing is doing poorly at a time when consumer demand, the housing market and financial services are doing well.
Osborne has given tax breaks for manufacturing, but the real help has been for the property market: funding for lending and help to buy have both boostedthis sector. Changes to inheritance tax and the extension of right to buy to housing association tenants will provide a further fillip to demand.
Five years ago, the chancellor arrived in office pledging to rebalance the economy towards production and exports. The latest manufacturing data is evidence of his failure.
