UK loses momentum as factories, builders reduce output

[LONDON] UK manufacturing and construction shrank in January, pointing to a loss of economic momentum in the first quarter.

Factory output fell 0.9 per cent from December, the Office for National Statistics said on Friday. Total industrial production declined 0.4 per cent. Building firms cut output by 0.4 per cent.

The figures follow a strong end to 2016, and there is little evidence of a dramatic slowdown as Brexit talks loom, with the falling pound continuing to underpin exports.

But households are starting to feel the squeeze from soaring prices, putting a brake on the engine of the British economy. While budgetary officials see growth barely slowing to 0.6 per cent this quarter, Markit Economics says its surveys indicate 0.4 per cent, which would be the slowest pace in a year.

The fall in manufacturing was larger than economists expected. January saw a 14 per cent drop in the volatile pharmaceuticals sector, which was partially offset by higher production of vehicles. Overall industrial output was underpinned by higher oil and energy output. Production rose 3.2 per cent from a year earlier, with manufacturing gaining 2.7 per cent.

The biggest pressures on construction came from repairs and maintenance, housing and private industrial work. New construction orders in the fourth quarter fell by 2.8 per cent.

For many firms, rising input costs remain the biggest concern, with the squeeze on profitability offsetting the competitive edge gained from the weak pound.

Goods' exports climbed 1.6 per cent in January, the fourth consecutive month of increase, and imports rose 0.9 per cent. It left the trade deficit marginally lower than in December at £10.8 billion($S18.6 billion).

The economy grew 0.7 per cent in the fourth quarter, and revisions published Friday suggest that could be revised slightly higher.

Industrial output rose 0.4 per cent instead of 0.3 per cent and construction was revised to growth of 1 percent from 0.2 per cent. Together the changes add 0.05 percentage point to GDP.

Trade also put in a better performance than previously thought, with the deficit in goods and services narrowing to £5 billion from £13.8 billion in the third quarter. The fourth-quarter shortfall was initially estimated at £8.6 billion.

The downward revision suggests net trade made an even stronger contribution to growth in the period than previously estimated.

BLOOMBERG