British industrial output recovered more than forecast in December as manufacturers ramped up production, further dampening fears of recession.

Meanwhile, Britain's goods trade deficit narrowed to the smallest gap since February 2010.



Overall, today's data provide a bit of good news on the UK economy. But, even coupled with the better-than-expected January PMIs, these data are unlikely to persuade the MPC that further stimulus is no longer required. I expect the Committee to announce a further 50 billion pounds of asset purchases at lunchtime, bringing the total to 325 billion. In truth, even more stimulus is probably warranted, but there are signs that at least a few committee members are nervous about moving too far too fast.


Industrial production was close to what was implied by Q4 GDP data so even though it was above consensus expectations, it shouldn't have come as a surprise. It shouldn't change the first estimate of Q4 GDP.

The bounce in manufacturing is very encouraging. It does tally to some extent with the improvement we've seen in survey indicators such as the PMI, so the question is whether momentum can be maintained.

On the trade deficit data, much better than expected. This is probably the only component of GDP by expenditure that contributed positively to growth in Q4. The strength had to come from somewhere and net trade is probably where it came from.

I think it's marginal really (whether this batch of data could have an impact on Bank of England's decision over QE). If they were really on a knife edge, it might persuade them towards less in the way of QE but I think that decision was probably already made.


On the manufacturing side, the figures are not only much stronger than expected, they represent a change from the ONS' implied estimate at the time of the Q4 GDP figures. Evidence of a recovery in the British economy appears to be gathering pace.

The trade figures are better than expected as well. Also the smaller deficit is mainly on account of a drop in imports on the month.

We still expect the Monetary Policy Committee to sanction a further 50 billion pounds of QE at lunchtime, however the recent run of stronger indicators certainly makes the monetary debate more interesting.


The monthly figures are obviously quite a bit better in December than we thought, but just looking at the three-month figure it doesn't look very different, so for example if you look at the quarter-on-quarter rate for industrial production it's now -1.4 and on the preliminary GDP estimate it was -1.2 so the gross number on the quarter is fractionally weaker, not enough to prompt a revision arithmetically, but I think there will be a positive market reaction to these numbers because the December print is so much above.

We were a bit more cautious in December because the surveys on output weren't that brilliant. There was surprising weakness last time. The quarter on quarter doesn't look that different, so we're not going to get a GDP revision but the fact that the latest print is quite a bit stronger and we're going into that period where survey data picked up a lot gives you a bit of encouragement.