Written by Colin Sanders
Posted on 27/01/2017

Manufacturing continues to bolster UK economy with a strong end to 2016

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An economic surprise

Britain’s economy is showing unexpected robustness, despite predictions of a Brexit-driven slump. The main contributors to the country’s economic resilience are manufacturing and construction, which both ended 2016 with significant growth.

The Office for National Statistics (ONS) released figures revealing that manufacturing output grew more swiftly at the end of the year than anticipated – up 2.1% in December. Year-on-year predictions for manufacturing output growth lay at just 1.7% - far short of the actual 4% expansion we saw.

In addition, Britain’s trade gap also narrowed in December when the goods and services deficit reduced by £300 million – falling to £3.3 billion. This shrinking gap between exports and imports was driven by an increase in the export of goods to non-EU countries, which surged by £1.1 billion – reaching £43.8 billion in the final quarter of last year.

Manufacturing’s positive shock waves

When the manufacturing figures were released, the higher than expected figures created a surge in the pound’s value. This reflected a positive shift for the UK’s economy and the first quarter outlook for 2017.

According to the ONS, GDP also increased by 0.7%, up from 0.6%. This was, in part, driven by the manufacturing industry surpassing expectations, with stronger export growth, a competitive pound and a slowly strengthening global economy all contributing. However, it’s not all positive news for the economy as weakness in business investment and a predicted slowdown in consumer spending cast a shadow. Jeremy Cook, chief economist at the international payments company World First told the BBC:

“Services growth is set to slow, buffeted by rising inflation and slowing real wage gains and a consumer that is not waving but drowning.

“Business investment remains poor, given uncertainty over the negotiations between the UK and the EU following the Brexit vote last summer and while trade was stronger on the quarter, this is purely a function of the devaluation of the pound,” he added.

International jitters

Indeed, business investment fell by 1.5% between 2015 and 2016, equating to a loss of £2.7 billion, according to the ONS. This is the first annual decrease since 2009 and suggests Brexit uncertainty is still causing jitters among international investors.

With business investment looking uncertain, manufacturing and construction industries are under pressure to hold the fort. Both industries provided all the growth in UK industrial production, which achieved a six-year peak in the final month of 2016.

However, despite this positive result, annual estimated GDP growth for the whole of 2016 was altered from 1.8% to 2%. This was due to worse than previously reported figures for the first quarter of last year, according to the ONS. As a result, the UK has lost its mantle as the fastest growing G7 economy.

The economy will be counting on the services, manufacturing, and construction industries to ensure a positive trajectory in 2017. At the very least, the uptick in manufacturing strength means the UK will face the economic challenges of Brexit upon a stronger platform than predicted.

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