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UK Industrial Production Contracts More Than Expected

18 May 2017 10:05:09

Output in the UK’s construction and manufacturing sectors contracted more severely than expected in March, as the country’s trade deficit widened.

The manufacturing sector had previously been a bright spot as a weaker currency has helped to make British products more competitive against their foreign counterparts, amid widespread concerns that a growth slowdown was underway in the UK economy.

However, data from the Office for National Statistics (ONS) found that manufacturing fell 0.6% in March, alongside a fall in construction of 0.7%, amounting to a total fall in industrial output of 0.5% - a third straight month of decline.

These figures fell well short of expectations, and point towards what amounts to a slowdown on momentum for the UKs economy, just as we begin our negotiations with Europe. Compounding matters, the UK’s total trade deficit in goods and services widened by £2.3 billion between February and March to £4.9 billion, contributing nearly half of the quarterly deficit.

On a quarterly basis, however, industrial output climbed slightly by 0.1% and manufacturing growth slowed to 0.3%. Indeed, despite the negative news, the ONS are keeping their preliminary estimate that the economy grew 0.3% in the first quarter of 2017 in place.

In the markets, the pound erased its early gains immediately after the disappointing data was revealed.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: "March's industrial production figures show that the pressure on consumers' real incomes from rising inflation is beginning to hurt manufacturers.

"Industrial production has fallen for three consecutive months.

"With households' real incomes set to come under further pressure from rising inflation, manufacturing output likely will grow only sluggishly ahead."

The trade figures in particular make for sober reading, with the collapse in the value of the Brexit hit pound failing to provide a significant boost for exporters.

"March's simply dreadful trade figures demonstrate that Britain is failing to capitalise on sterling's depreciation," Mr Tombs added.

The industrial production figures were held down by a fall in housing repair and maintenance jobs, whilst the main downward impact on production came from electricity generation, due to warmer and drier weather.

Oliver Kolodseike, senior economist at the Centre for Economics and Business Research, weighed in, saying: "Today's figures are worrying news for the sector.

"With the consumer boom that has propelled the UK economy forward in recent years likely to end this year as rising inflation is predicted to outstrip earnings growth, manufacturing will be a key determinant of the UK economic performance.

"With the sector expected to be a growth driver this year, today's release represents a concern for the overall economic outlook."

Needless to say, for weld fitting specialists like us, this is bad news, and has been quickly politicised by parties opposed to the Conservative. In particular, Sir Vince Cable, former Liberal Democrat business secretary said that the figures are another sign of the “Brexit squeeze”, adding that: "Growth has slowed to a crawl, production output is turning downwards, and our economy has not been in a more worrying state since the aftermath of the 2008 financial crash.

"Despite the Conservatives' claims that they are turning Britain into a global trading nation, the reality is that our exports to the EU are up, but down with the rest of the world.

 

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