Policy Research in Macroeconomics

Q4 industrial production – small annual rise, but quarterly fall

The latest industrial production data published today by ONS , for Q4 and the month of December, were generally rather weak.

Taking the year 2015 as a whole, annual total production output rose 1.0% from 2014. Of the 4 main sectors, manufacturing output was the only one to fall, decreasing by 0.2%.  Mining & quarrying (including North Sea oil and gas) rose by 6.7% in volume terms, but of course with falling oil and gas prices, the change in revenue from this production will be far lower.

 Manufacturing, we should note, is responsible for around 7/10 of total industrial production.

Comparing Q4 2015 with Q4 2014,  total production output was up by 0.6%.  Mining & quarrying rose by 8.7% (oil & gas extraction a big 14.7%), and water supply sewerage etc. by 4%, but manufacturing fell by 0.4% year on year, while electricity gas steam & air conditioning fell by 1.4% year on year.

Looking at the Quarter on Quarter change, total production fell by 0.5% between Q3 (July to Sep) 2015 and Q 4 (Oct to Dec).  The largest contribution to this  quarterly decrease came from mining & quarrying, which fell by 2.3%, while manufacturing output remained unchanged during the same period.

Taking the latest monthly figure, total production output fell by 0.4% in December 2015 compared with December 2014. The largest contribution to the fall came from manufacturing, down 1.7% on the year.

In Quarter 4 (Oct to Dec) 2015, production and manufacturing were 9.8% and 6.5% respectively below the pre-financial crisis GDP peak in Quarter 1 (Jan to Mar) 2008.

Taking a longer term perpsective, ONS published an interesting chart, reproduced below, showing the annual growth rate (per month) from 1949, including the average rate for manufacturing and total industrial production over 3 time periods:

We can see that in the post-war period when finance was regulated, industrial production and manufacturing increased at an annual rate of over 3%, but that since at least 1993, this has fallen back to around 1% pre year, and even less recently, due to declining oil and gas production in particular.

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