UK manufacturing production rose sharply in the last few months of 2016. January did see a modest setback but this is likely to be temporary as orders certainly look strong enough to generate further output gains.
As a result, 2017 will probably see a further acceleration in output growth. Near term, the boost to competitiveness from sterling’s depreciation last year last is probably a key driver of this upturn, although some surveys show domestic sales rising more quickly than external sales.
Looking further out relatively weak productivity growth remains a key issue for the sector, while the outcome of Brexit negotiations is a major area of uncertainty.
Manufacturing output is on an uptrend
Clear signs are now emerging of an acceleration in UK manufacturing activity. In our last quarterly note we highlighted a strong likelihood that output growth had picked up in late 2016 and that this would continue into 2017.
Recent data has confirmed the first of those predictions, as manufacturing output rose by 1.2% in quarter four of last year. Admittedly, that followed a drop in output in the previous quarter. Nevertheless, the underlying trend is clearly upward, as is indicated by the 1.9% rise in Q4 production when compared to the same quarter a year ago