Osborne’s makers aren’t marching

Britain's manufacturing industry continues to disappoint despite the chancellor's efforts to get the makers moving.

16-1-14-Osborne-634

Britain's manufacturing sector is stalling

The latest industrial production and manufacturing figures were "unambiguously rubbish", as Michael Hewson of CMC Markets put it. Industrial production (manufacturing, mining and energy supply) fell by 0.7% in November, the worst monthly fall in two years. Unusually warm weather dented electricity and gas output. Manufacturing output fared little better, declining by 0.4%. It has been treading water for a year. Industrial production is still 9.1% below the 2008 peak; factory output, 6.1%. Sterling sank to a five-year low under $1.44 against the dollar.

What the commentators said

Factors such as a strong pound over the last few years, a slowdown in China and emerging markets, the euro crisis and general market volatility aren't the chancellor's fault. But "it's the Tories" who are fuelling uncertainty and deterring investment through the EU referendum, and they have yet to tackle permanent obstacles for the sector, including skill shortages, restricted access to finance and comparatively high electricity costs.

The factory data, along with recent releases signalling slower growth, has fuelled the belief that interest rates will now stay lower for even longer, said Peter Spence in The Daily Telegraph. JP Morgan, one of the last banks to believe that the Bank of England would hike in the first half of the year, has now pushed its forecast for the first rise back to November.

This is the key reason sterling has weakened, but hardly the only one. The latest slump in the oil price implies that inflation, currently hovering around zero, is not likely to take off anytime soon, another reason to think the bank is in no hurry to tighten.

"Britain's hefty current-account deficit makes it one of the most vulnerable major currencies when market sentiment sours," added Jemima Kelly on Reuters.com, while the Brexit referendum is also moving centre stage. The uncertainty looks set to deter investment flows into the UK, leaving sterling exposed, Morgan Stanley's Ian Stannard told Bloomberg.com. Deutsche Bank thinks sterling could fall by another 15% against the greenback by the end of 2016.

Recommended

Will energy prices go down in 2023?
Personal finance

Will energy prices go down in 2023?

Ofgem’s price cap is now predicted to fall to around £2,000, based on average typical use, for the first time since 2022. We have all the details.
31 Mar 2023
When will interest rates go up?
UK Economy

When will interest rates go up?

The Bank of England raised rates to 4.25%, its 11th consecutive increase. Does the base rate have further to go?
30 Mar 2023
What is inflation and how will it affect you?
Inflation

What is inflation and how will it affect you?

There has been much talk of inflation recently. But what exactly is it and what does it mean for our money?
24 Mar 2023
Bank of England hikes key interest rate to 4.25%
UK Economy

Bank of England hikes key interest rate to 4.25%

The Bank of England raised rates by 0.25% following a surprise jump in inflation.
23 Mar 2023

Most Popular

Will energy prices go down in 2023?
Personal finance

Will energy prices go down in 2023?

Ofgem’s price cap is now predicted to fall to around £2,000, based on average typical use, for the first time since 2022. We have all the details.
31 Mar 2023
Best areas for buy-to-let in the UK
Buy to let

Best areas for buy-to-let in the UK

If you’re thinking of getting a buy-to-let property you’ll want to know the areas in the country with the highest rental yields
29 Mar 2023
The best one-year fixed savings accounts - March 2023
Savings

The best one-year fixed savings accounts - March 2023

Earn over 4% on one-year fixed savings accounts.
30 Mar 2023