UK IP surprises to the downside but overall positive signal

In terms of UK's main industrial groups, production was dragged lower by a sharp downward turn in energy products (-3.2% m/m, -0.8pp contribution) and nondurables (-3.3% m/m, -0.7pp contribution). 

Both registered their biggest falls since January 2014. Intermediate goods (1.6% m/m, 0.4pp) and consumer durables (4.4% m/m, 0.3pp), however, both registered their largest rise since January 2014. Investment also rose in June (1.7% m/m, 0.4pp), reversing its downward trend.

"Overall it is  a positive signal. The increase in Manufacturing is expected after two months of decline supported by stronger investment and intermediate goods. Over the quarter the increase in investment goods is now 1.3% q/q, making up for a 1.1% q/q contraction in Q1 and stronger increase since Q1 14", says Barclays. 

However, manufacturing overall ended the quarter in negative territory and continues to display trend weakness. Stronger manufacturing PMI in July may signal that at the margins the trend is improving, but we reckon the sector remains a cause for concern as structural issues still remain. 

"In addition, appreciation of the currency as well as government policies (fiscal consolidation and the EU referendum) will put households and companies under increasing pressure", added Barclays.