Drop in Industrial Output Impacts Pound

The most recent analysis reveals that the UK’s industrial output dropped noticeably in November, an that the impact of this was felt by the country’s currency. Lacklustre industrial production helped contribute to a situation where the pound traded lower against the US dollar than it has for the past five-and-a-half years.

According to Capital Economics, who carried out the research and analysis into production data, UK industry delivered “a dire performance through much of 2015” and that there was “No change in the manufacturing sector’s fortunes” to be seen in the analysis of November’s data. Output was up 0.9% compared to November 2014 – the smallest annual increase since July. Manufacturing output, meanwhile, fell by 1.2% year-on-year. Overall, analysts warned, this suggests that growth in industrial and manufacturing output remains flimsy and not necessarily reliable, leaving the UK more heavily reliant on consumer spending and the service sector to drive continued economic recovery.

From a more short-term viewpoint, industrial production in November fell by 0.7% compared to the previous month. According to data from the Office for National Statistics (ONS), this is the biggest monthly drop observed in the sector since the early part of 2013. This is believed to be partly down to the weather being very mild for the time of year, reducing consumption of gas and electricity. Manufacturing output, meanwhile, fell by 0.4% between October and November. This represents the second month of decline in a row. The biggest single factor driving the October-November drop in manufacturing output seems to be a fall in production in the pharmaceutical sector.

The effect of this on the value of the pound was a noticeable drop. At its low point, sterling was trading at a value of US$1.4408 – the weakest figure since 2010 – which represents a fall of 1.5 cents. The pound then made a slight recovery from this bottom point, to trade at a a value of US$1.4415.

The fall in the value of the pound may make it slightly easier for the UK’s industrial and manufacturing sectors to recover from the situation. It could help make the UK more attractive to overseas markets by providing an effective price drop, thereby encouraging exports. However, there is not much else in the way of encouragement to be found in Capital Economics’ analysis.

Nonetheless, the National Institute of Economic and Social Research (NIESR) has just announced that it expects that, when full analysis is in, it expects the UK will be seen to have achieved a healthy rate of growth in the region of 0.6% over the final quarter of 2015, and 2.2% for the year as a whole. Even so, the Institute warned of “little spare capacity in the economy.”

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