UK manufacturing rebounds in May

7 July 2011 Last updated at 11:22 GMT Manufacturing has been one of the stronger sectors of the UK economy in recent months UK manufacturing output jumped by the largest amount in a year in May following a sharp drop in April.

The Office for National Statistics (ONS) said manufacturing output rose 1.8% in May, following a 1.6% drop in April when output was affected by the royal wedding public holiday.

However, the wider measure of industrial production rose by 0.9% in May, which was smaller than expected.

Analysts said the figures suggested the economic recovery remained weak.

Growth forecast

Manufacturing output in April was hit by both the large number of public holidays in the month, and by some firms being affected by supply problems stemming from the disruption caused by March's earthquake and tsunami in Japan.

The ONS said that the supply problems from Japan had diminished in May, contributing to the rebound.

However, May's increase in the industrial production measure - which includes utilities, and oil and gas extraction - failed to offset the 1.7% fall recorded in April.

"Even a decent rebound in June would probably leave industrial production down quite sharply in Q2 as a whole compared to Q1 and therefore dragging on GDP growth," said Vicky Redwood at Capital Economics.

"The survey evidence has given a pretty consistent picture of an underlying slowdown in demand for UK manufacturers' products both at home and overseas. Accordingly, this slowdown in the industrial recovery looks like it might continue."

Last week, the manufacturing purchasing managers' index for June - compiled by research firm Markit - indicated that growth in the sector had slowed.

However, other analysts were more optimistic.

"Manufacturing is not as structurally soft as some people had feared," said David Page at Lloyds.

"We think it will continue to be the cornerstone for an economic recovery over the next few quarters."

The Bank of England kept UK interest rates at the record low of 0.5% on Thursday, as expected.

Analysts do not expect any increase in UK rates until the final quarter of this year at the earliest, with many not expecting the Bank to make a move until 2012.

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Japan's factory output rebounds

29 June 2011 Last updated at 02:17 GMT Car production was hit badly due to a shortfall of parts following the earthquake and tsunami Japan's factory output rose at a faster-than-expected pace in May as the economy continued to recover from March's earthquake and tsunami.

Japan's industrial output jumped by 5.7% in May, compared with the previous month, the latest government data showed.

The twin disasters had damaged factories and caused disruption to the country's supply chain.

This is the second successive month that industrial output rose in Japan.

"As supply chains recover from the damage caused by the March earthquake, output is showing a strong recovery, mainly in cars," said Yuichi Kodama, of Meiji Yasuda Life Insurance.

'Downside risk' Some of the biggest Japanese manufacturers had to suspend or curb production after the earthquake and tsunami, due to a shortage of parts and electricity supply.

While an improvement in the supply chain has eased the parts shortage, power cuts still remain a big concern for manufacturers, not least because of peak consumption during the summer months.

"The prospect of power shortages in the summer is making companies cautious about the outlook," said Mr Kodama.

Analysts also warned that if a solution to the power crisis is not found quickly, it may have an adverse affect on the overall economy.

"Longer-term, power constraints are a downside risk to the economy as more companies may decide to shift their production overseas, which would weigh on Japan's potential growth rate," said Yoshiki Shinke, of Daiichi Life Research Institute.

Back on track

One of the sectors worst hit by the twin disasters was Japanese car manufacturing.

A shortage of parts coupled with power supply constraints saw leading manufacturers like Toyota and Honda suspend production at their factories.

However, the latest production numbers show that the pace of decline at Japan's car manufacturers is slowing down.

On Tuesday, Toyota reported that its domestic production in May fell by 54.4%, compared with the same month last year. Last month it reported a 74.5% drop.

Honda said its Japanese factories produced 53.4% fewer cars in May. Its output had plunged by 81% in the previous month.

Meanwhile, Nissan said production at its domestic factories actually increased by 0.8% in May, compared with a 48.7% drop in the previous month.

Analysts said that the recovery in the sector had been faster than they had expected.

"Carmakers have been able to recover very quickly from the loss of output after the earthquake," said Shuji Tonouchi, of UFJ Morgan Stanley Securities.

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