MNI 5 Things: Forties Reopening Sets Up UK IOP January Rebound

--UK January Short Term Indicators Data Due for Release Friday

by Jamie Satchi

     LONDON (MNI) - Ahead of the UK January Industrial Production (IOP),

Manufacturing, Construction output and Trade data will be release, we outline

five themes for particular attention.

-Pencil in a Double-Digit Rebound in Mining and Quarrying Output. 

     With the Forties Pipeline System (FPS) back in business in January a

sizeable rebound in mining and quarrying output is widely anticipated. Output

tanked 19.1% m/m in December and a near-equal and opposite outturn could be on

the cards for January. As such, analysts polled by MNI envisage a 1.5% m/m rise

in IOP output, following December's 1.3% drop, while also forecasting

manufacturing to expand for a ninth straight month.

-Surveys Signal Resilience. 

     Both the CBI Industrial Trends Survey (ITS) and the IHS Markit

Manufacturing PMI pointed to resilience in the manufacturing sector in January.

The PMI, though did moderate below analysts' expectations to 55.3, remained well

above the long-term average of 51.7 and suggested demand remained sound. The

ITS, on the other hand, was slightly more bullish, reporting incoming export

orders expanding at a pace last seen higher in April 2011 in the three months to

January.

-Trade Deficit to Narrow. 

     The marked widening in the trade deficit in December was due to two factors

-- higher imported fuel prices and lower fuel export volumes. Much of this was

induced by the Forties closure while movements in erratic components like

non-monetary gold also played a part. These forces should have unwound to some

degree in January, helping to bring down the overall deficit. Fuel prices,

however, did remain elevated in January and will provide continue to a drag on

any narrowing effect. Still, the overall picture is one absent of any material

improvement in the trade balance since the sterling slide -- yes, goods exports

have risen, the only issue is that imports have too.

-Record Car Exports Will Support Trade. 

     The 119,252 count of UK-built cars destined for foreign shores in January

was the highest since records began back in 1987, (non-seasonally adjusted) data

from the SMMT showed. Consequently, total car manufacturing was broadly

unchanged from last January's nine-year year and this should support the

manufacturing component of IOP as well as the visible trade balance. Cars

(9.5%), the UK's second biggest export product, and other road vehicles (2.3%)

account for just over a tenth of total UK exports.

-One-off Shocks to Distort Q1 GDP Data. 

     The Forties closure and February's arctic-like chill will make the Bank of

England's task of trying to gauge underlying UK growth in Q1 slightly more

difficult. Given the former occurred in December last year, contributing to a

downgrade in Q4 growth, we know the recovery in the January data will aid Q1

GDP. In contrast, given the 'Beast from the East' arrived in the UK late in

February, the associated hit and rebound will largely be captured in the Q1

data. Thus, the net impact of these two unanticipated shocks will aid the calls

of either the hawks or doves, we just don't know who yet.

     The MNI median expectations, taken from a poll of analysts, are shown in

the table below.

           Jan       Jan

      Industri  Industri         Jan          Jan         Jan     Jan        Jan

            al        al  Manufactur  Manufacturi  Constructi   Trade    Visible

      Producti  Producti         ing           ng          on  Balanc      Trade

            on        on      Output       Output      Output       e    Balance

         % M/M     % Y/Y       % M/M        % Y/Y       % M/M  Stg bn     Stg bn

--------------------------------------------------------------------------------

MNI

Medi

an        +1.5      +2.5        +0.2         +2.8        -0.5    -3.3      -11.9

Prio

r         -1.3       0.0        +0.3         +1.4        +1.6    -4.9      -13.6

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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