The dominant term in the UK economy has long been the service sector, but industrial activity remains an important component. Figures released from the Office for National Statistics reveal that the industrial sector of the economy lapsed into its third (technical) recession in the past eight years between the fourth quarter of 2015 and the first quarter of this year. In Q4 2015, the sector shrank by 0.4% and by the same amount in Q1 of 2016, this means that the sector saw a 1.9% decline between Q1 2015 and Q1 2016 making it the biggest decline seen since 2013. Within the sector, the greatest loser was the iron and steel manufacturing activity which saw a walloping 37.3% decline compared to activity a year earlier.
On the brighter side, figures show that the sector managed an expansion of 0.3% between February and March which tends to suggest that the mini recession may be short-lived – a technical recession requires two consecutive quarters where the sector under focus is contracting. Equally, oil and gas production has picked up by 17% in February and by 10.9% in March over the comparable periods in 2015. This probably reflects the fact that the shock due to the collapse in the oil and gas price is working its way through the data now.
The industrial sector and construction activity is being seen as a drag on the overall economy and has been blamed for the slowing of growth from 0.6% in Q4 2015 to 0.4% in Q1 of this year.
It is likely that uncertainty over the outcome of the UK EU referendum is weighing on UK economic activity. The consensus view is that a decision to leave the EU would harm the UK’s economic prospects in the near term although the “Brexiteers” would no doubt regard this as scaremongering on my part.