Policy Research in Macroeconomics

August: UK production up due to North Sea oil, manufacturing slides

Today, the Office for National Statistics published the latest estimated industrial production figures, for August 2015.  They show that total production output increased by 1.9% compared with August 2014. This is the best monthly percentage annual rise since April 2014.  

The main increase came from the “mining & quarrying” sub-sector (nowadays largely made up of North Sea oil and gas), which increased year on year by a very big 17.7%. This scale of increase has been foreseen for some time, since it results from significant investment in the last couple of years, but the timing of course has coincided with a far lower price per barrel than estimated when the investment was made, so income from the increased production will not rise commensurately.  

For more background information, the Oil and Gas UK’s 2015 survey (published earlier this year) is a useful source.  The Extraction of Petrol and Gas index has risen back to 108.3, from a trough in 2012 and 2013 of 88, but compared to a peak (in a dataset going back to 1997) of just over 300 in February 2002.

However, on the downside, manufacturing output fell by 0.8% in August compared with August 2014, the fourth annual fall in the last 5 months.

Compared to July 2015 (a weak month), total production is estimated to have increased by 1.0% in August. There were increases in 3 of its 4 main sectors, with the largest contribution coming from “mining and quarrying” which increased by 6.0%. 

Manufacturing output also rose from July, by 0.5%.

In August 2015, the index of production has reached its highest level (102.3) since October 2011.  It first reached this level in 1988.  The index of manufacturing in August was 101, a level it first attained in September 1994. (Base year 2012 = 100).

Looked at on a medium-term basis, in the 3 months to August 2015, total production and manufacturing were 9.4% and 6.5% respectively below their levels reached in the pre-financial crisis GDP peak in the first Quarter of 2008.  

Compared with the same 3 months in 2014, there has been an annual rise of 1.3% in total production.

In conclusion, UK manufacturing continues to go through a difficult, rather stagnant period, while overall production is boosted by the recent sharp increase in the extraction of North Sea oil and gas.  That industry, however, is subject to its own pressures arising from the huge fall in the price of Brent Crude.

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