Britain’s factories maintained their slow recovery in the runup to Christmas, but the rise in manufacturing output failed to offset falls in mining and energy, leaving industrial production down 0.2% in December.
Analysts blamed jitters over the eurozone’s return to health for keeping the UK’s productive sectors subdued, alongside a steep fall in oil and gas production in the North Sea brought on by the collapse in oil prices.
Over the past seven months oil prices have fallen by more than 50%, handing manufacturing businesses a large cut in production costs, but devastating the oil industry and North Sea production.
The net effect for the UK is positive after the country became a net importer of energy more than 10 years ago.
The Office for National Statistics (ONS) said the figures were slightly better than its initial estimates, which forecast a modest month-on-month fall in manufacturing output. However, the nudge higher in December was unlikely to be large enough to make an impact on the quarterly GDP figures.
ONS figures for the final month of 2014 showed that manufacturing, despite some ups and downs, grew by 0.1% between November and December, and by 2.4%. The broader measure of total industrial production increased by 1.4%.
Rob Wood, chief UK economist at Berenberg bank, blamed extended maintenance of North Sea oil rigs, forcing their closure for longer periods, for much of the fall in industrial production, which was likely to bounce back this year.
He said: “December’s overall industrial production fall was driven by falls in volatile oil and utilities output. Extended maintenance in some North Sea fields, like Huntington, account for the 1.4% [month-on-month] fall in extraction output in December – as an aside, that fall in oil output in December tallies with last week’s trade figures showing the oil trade deficit worsening in December.”
He also blamed the unusually warm weather through the final three months of last year for households using less electricity and gas than normal. “With the weather turning in the first quarter of 2015, and that maintenance perhaps ending, both subsectors could contribute solidly to Q1 growth. Importantly, manufacturing, which accounts for the lion’s share of industrial production, seems to be putting the worst of last year’s slowdown behind it with [industry surveys] improving gradually and the sector recording two consecutive months of output gains,” he said.
Chris Williamson, chief UK economist at financial data providers Markit, warned that confidence among factory managers remained fragile. He said: “A sharp drop in factory output in October is a timely reminder that policymakers cannot be complacent about the UK’s recent run of strong growth persisting into the new year. Expectations of when UK interest rate may start rising will most likely be pushed back with the news that the manufacturing economy is struggling once again, and that the economic upturn remains all too dependent on domestic spending.”
