UK manufacturing jumps, construction falls as quarter starts

[LONDON] The UK economy made a mixed start to the third quarter, output figures published Friday suggest.

Manufacturing rose in July for the first time this year, boosted by a strong rebound in car production, and the trade deficit was little changed from a downwardly revised June. But construction shrank for a fourth consecutive month after a plunge in new orders in the second quarter.

The figures, from the UK statistics office, may do little to dispel the picture of an economy stuck in the slow lane as Brexit uncertainty and the squeeze from rising prices take their toll. Growth in the first half was the weakest since 2012 and surveys suggest the dominant services industry is continuing to lose momentum.

Manufacturing rose 0.5 per cent in July, more than the 0.3 per cent economists predicted. Vehicle output, which had fallen sharply in recent months, surged almost 14 per cent, the most since March 2009, helped by new models rolling off production lines. Total industrial production rose 0.2 per cent, held back by a 1.4 per cent drop in oil and gas production.

The deficit in goods and services was little changed at £2.9 billion (S$5.08 billion) as both exports and imports fell 0.2 per cent. The shortfall for June was revised down sharply from £4.6 billion, meaning the deficit in the second quarter was £7.7 billion instead of the £8.9 billion previously reported. It suggests net trade was less of a drag on the economy in the period than estimated in GDP data last month.

IMPORT SURGE

But while the weak pound has given a boost to exports over the past year, there is little sign that pricier foreign goods are leading consumers and companies to buy British-made products instead. Core import volumes rose an annual 7.2 per cent in the latest three months, just behind 8.9 per cent increase in exports.

The persistence of high deficits means trade is failing to aid growth, disappointing officials and analysts hoping for a re-balancing of the economy. The British Chambers of Commerce on Friday downgraded its GDP forecasts for 2018 and 2019, citing a weaker contribution from net trade and more subdued consumption.

Construction output fell a larger-than-expected 0.9 per cent, with private housebuilding contracting following a strong couple of months.

The effect of Brexit on investment and consumer spending was underlined by separate figures showing new construction orders plunged by 7.8 per cent in the second quarter. Housing fell 4.9 per cent and other work declined 9 per cent.

BLOOMBERG