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Manufacturing may be over the worst Manufacturing may be over the worst
(about 2 hours later)
George Osborne will be modestly cheered by the latest health check of manufacturing from the CIPS/Markit. Not so much from the headline figure – which suggested that the sector is hovering around the cut off point that separates expansion from contraction, but from the report's nitty gritty. George Osborne will be modestly cheered by the latest health check of manufacturing from the CIPS/Markit report. Not so much by the headline figure, which suggested the sector is hovering around the cut-off point that separates expansion from contraction, but from the its nitty gritty.
This suggested that factory output was at its highest for 16 months whilst manufacturing employment was also up for the first time since the spring of 2012.This suggested that factory output was at its highest for 16 months whilst manufacturing employment was also up for the first time since the spring of 2012.
In the light of concerns that heavy snow in the second half of January would disrupt production, it may be that manufacturing is over the worst after a difficult year. Certainly, the report provides some hope that the economy may avoid the dreaded triple-dip recession, with the recent fall in the value of the pound likely to buttress the continued weakness of the European economy.In the light of concerns that heavy snow in the second half of January would disrupt production, it may be that manufacturing is over the worst after a difficult year. Certainly, the report provides some hope that the economy may avoid the dreaded triple-dip recession, with the recent fall in the value of the pound likely to buttress the continued weakness of the European economy.
That said, there are two reasons why the chancellor is unlikely to be getting too carried away by the CIPS/Markit report. The first is that manufacturing order books remain extremely weak, particularly for those firms exporting to Europe. Any pick-up in production will be shortlived unless there is follow-through demand for their products. That said, the chancellor is unlikely to get too carried away by the CIPS/Markit report for two reasons. The first is that manufacturing order books remain extremely weak, particularly for those firms exporting to Europe. Any pick-up in production will be shortlived unless there is follow-through demand for their products.
Osborne will also want to see whether the stabilisation of manufacturing is mirrored by a stronger performance by the services sector, which accounts for 75% of national output as opposed to 10% from factory output. The evidence from services has been mixed: the Bank of England's Funding for Lending Scheme is starting to increase the flow of mortgage credit but the squeeze on real wages is still having an impact on consumer spending. Osborne will also want to see whether the stabilisation of manufacturing is mirrored by a stronger performance by the services sector, which accounts for 75% of national output as opposed to 10% from factories. The evidence from services has been mixed. The Bank of England's funding for lending scheme is starting to increase the flow of mortgage credit, but the squeeze on real wages is still having an impact on consumer spending.