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Falling oil prices could boost manufacturing, says EY

Jan 09
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Falling oil prices could boost manufacturing...

Despite industrial production slipping in November, falling oil prices look like they have boosted manufacturing, according to global services firm EY.

The plummeting price of the commodity has also contributed to a drop in the trade deficit, explained Martin Beck, senior economic advisor to the EY ITEM Club.

He added: "Alongside a downward revision to industrial output in October, the contraction in November’s production comes as a disappointment. The pace of industrial growth in the final quarter of 2014 now looks set to have slowed on Q3’s rate."

However, Mr Beck believes there are signs that there are better things to come heading in to 2015. The dip in industrial production in November was triggered by a significant decline in output for oil and utilities.

He explained that while this drop has hurt some sectors, he believes it will result in improved margins for the majority of businesses, as well as bolster demand both domestically and abroad.

"Indeed we may already be seeing signs of this support with manufacturing output increasing at a solid rate in November," Mr Beck continued.

"A modest depreciation of sterling since the middle of the year should also help to boost the competitiveness of UK manufacturers abroad, although the latest trade figures suggest this effect has yet to come through."

Mr Beck added that November saw the deficit on goods and services drop to their lowest levels since June 2013, but this was a result of a sharp decline in the value of imports rather than stronger exports, which stagnated on a monthly basis last year.

He described falling oil prices as the "clear protagonist" of the improving trade deficit, as the commodity's import values fell by as much as £700 million in the 11th month of 2014.

As the price of Brent crude has plummeted since the beginning of December, Mr Beck said EY expects relatively healthy trade figures for the close of 2014.

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