UK's fragile recovery too reliant on services

Hopes for a broad economic upturn were dented as figures showed a worsening decline in manufacturing output in May

Better results in manufacturing are needed
Better results in manufacturing are needed

Hopes for a broad economic upturn were dented as figures showed a worsening decline in manufacturing output in May while the UK’s trade deficit increased.

Factory production fell 0.8% on the previous month following a 0.2% decline in April, the Office for National Statistics said, while in a separate announcement it said the trade deficit in goods rose to £8.5bn.

The figures indicated that recovery remains largely reliant on the dominant services sector, economists said, though construction could also contribute.

Manufacturing over the latest three months was still 0.3% up on the previous quarter, after an uptick in March.

It was down 2.9% on the same period last year though the ONS cautioned that comparison may have been skewed by a change in bank holiday dates in 2012.

Data showed manufacturing in May was hit by falls in pharmaceuticals and metal products while there were increases for food, drink and tobacco, and chemicals.

Overall production in May was flat compared with the previous month but 2.3% down compared with the same period last year.

Electricity and gas supply fell while there were increases for mining and quarrying as well as water and sewerage.

Meanwhile, trade figures showed an £8.5bn deficit on goods, up from£8.4bn in April.

This looked worse when excluding oil, with the balance increasing by £700m to £7.7bn.

The overall deficit was £2.4bn, up from £2.1bn. This took into account a £6.1bn surplus in services, a fall from£6.4bn in April.

Samuel Tombs, of Capital Economics, said the figures were disappointing given recent positive survey data from across the economy, saying they “indicate that the overall recovery is still largely dependent on the services sector”.

Howard Archer, chief UK economist at IHS Global Insight, said hopes for overall 0.6% growth in gross domestic product in the second quarter would have to rely on a strong contribution from the service sector plus an expected upturn in construction.

David Kern, chief economist at the British Chambers of Commerce, said: “Overall, our trade deficit is still too large, and we are not making fast enough progress in rebalancing our economy towards net exports.”

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