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Industrial output: What the economists say

Guardian Economics 10th June 2009

Surprise 0.3% rise in UK industrial output reinforces City expectations that the recession may be drawing to a close

Today's surprise 0.3% rise in UK industrial output has reinforced City expectations that the recession may be drawing to a close. Some analysts even believe the economy may grow during the current quarter, but the recovery will probably be slow and modest.

Howard Archer of IHS Global Insight

"The first rise in industrial production for 14 months in April adds to a recent stream of improved data and survey evidence and reinforces belief that the economy will see only modest GDP contraction at worst in the second quarter. Furthermore, manufacturing output rose by 0.2% month-on-month for a second month running in April after March's previously reported drop of 0.1% was revised up. These are the first increases in manufacturing output since March 2008. Significantly, the largest rise in manufacturing output in April itself occurred in the transportation equipment sector (up 3.2% month-on-month) which clearly reflected car production resuming in some plants after extended winter closures to reduce stock levels.

"The manufacturing sector is now clearly being helped significantly by the substantial de-stocking that has taken place and it may well also be increasingly benefiting from the boost to competitiveness stemming from the weak pound.

Nevertheless, manufacturers still face serious obstacles and sustainable growth in the sector could remain elusive for some time to come. While leaner stocks and a competitive pound have improved their position, manufacturers are still battling against muted domestic and export demand, intensified competition and ongoing tight credit conditions. Furthermore, manufacturers will be hoping that sterling does not significantly extend its current rally."

Philip Shaw, Investec

"The manufacturing numbers and industrial production figures generally bode well for a recovery in the economy and it's quite feasible that GDP will have posted a gain over the second quarter. We suspect, though, that much of this reflects the turn in the stocks cycle and there remain questions over the recovery in final demand, which is significant because the inventory effect is only likely to last one or two quarters.

"The jury's still very much out on the strength or the shape of the medium-term recovery in the economy."

Alan Clarke of BNP Paribas

"This is consistent with the bounce we have seen in survey indicators, particularly the Cips. Likewise, it is consistent with firms gearing up production after artificially depressed levels around the turn of the year. This is another good reason to expect a positive for quarter-on-quarter GDP during Q2."

James Knightley of ING

"It is looking increasingly possible that the UK could lead the rest off the G7 out of technical recession. Indeed, a positive 2Q09 GDP reading is not completely out of the question, but 3Q09 is looking more likely.

In terms of the positive developments, aggressive monetary stimulus has helped to lower borrowing costs within the economy, while sterling's plunge is improving the international competitiveness of industry. The return of output from the auto industry after shutdowns earlier in the year will also have helped boost the figures. That said, there are plenty of headwinds for the UK economy (deleveraging, higher saving, higher taxes and less government spending) so the Bank of England will want to ensure that recovery is sustainable before raising interest rates."

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