U.K. IP Continues to Make Headway

U.K. industrial output rose by 1% in November after gaining 0.2% in October, marking the first back-to-back monthly gains since February and April.

Output seems to be on some sort of an upswing as three-month growth is at an annual pace of 2.9% compared to nearly identical growth rates of 0.2% and 0.3% over six months and 12 months, respectively. In the quarter-to-date (QTD), output is rising at a 1.8% annual rate. And output still has not recovered to its pre-covid level as it is 1.8% below its level of January 2020.

Sector stories Three of four sectors made gains in November with consumer nondurables as the exception. For these four sectors over the last three months, there are 12 month-to-month changes in output, and among those twelve, five of them showed month-to-month declines. The other seven showed increases. That comparison points out that while output is rising more than falling, the industrial sector is still quite mixed. The longer trends from 12-months to six-months to three-months show no clear trends The overall mostly accelerating pattern actually does not get support from individual sectors, but three of four sectors do have a three-month growth rate above their respective 12-month growth, a sort of 'poor-mans' indication of acceleration. But only two of four sectors show positive advances in the QTD growth: consumer nondurables and intermediate goods. Output is contracting so far in Q4 for consumer durable goods and for capital goods. Sectors also are mixed on the view of recovery from Covid. Consumer nondurables and intermediate goods show output at a higher level in November than in January 2020. But consumer durables goods and capital goods show output lagging their January 2020 performance by 5.4% and 11.4%, respectively. Those are relatively large shortfalls.

The table highlights five industries as well. Among their most recent three-months (where there are 15 month-to-month changes), nine of them show drops in output against only six showing advances. Only one sector shows a clear three-month trend; that is textile and leather goods where growth in output is decelerating. Only one of five industries shows three-month growth faster than 12-month growth- and that is motor vehicles & trailers where the three-month negative growth rate is smaller than the 12-month negative growth rate. Only two of these five industries show output stronger in November than in January 2020: (1) food, beverages & tobacco and (2) textiles & leather.

Virus conditions The U.K. continues to be amid a real virus breakout. There are hints that the ramp up in the infection rate may have peaked, but the data are still in the volatile, elevated, period. And while infection rates have hit and hovered at record levels, the death rate has edged up only slightly and is nothing like it was in earlier episodes in April 2020 or January 2021 when it spiked so high. But because of the sheer number of people who are dealing with covid, there is pressure on the health care system and a hit to the U.K. growth rate. Looking ahead, the U.K. would seem poised for this ramp up to slow and to breathe some added life into the economy. But it is still unclear how fast the Omicron virus will fade. As always, the virus is an important part of the outlook. For now, for the first time in a while, the U.K. seems to be at a point with the infection that the future will become more positive. And, as always, I say that with a watchful eye on a still uncertain future.