UK trade, manufacturing disappoint in second quarter

London

THE UK economy ended the second quarter on a disappointing note as manufacturing stagnated and the trade deficit unexpectedly widened, figures published on Thursday show.

Total industrial production rose 0.5 per cent in June, more than economists forecast, but the gain was due to higher oil production as summer maintenance shutdowns failed to materialise.

Manufacturing was unchanged as production of vehicles plunged by 6.7 per cent, the most since the end of 2013, according to the data from the Office for National Statistics. That means the sector hasn't grown in any month this year.

James Smith, an economist at ING in London, said this is "particularly concerning" given the pound's decline since the Brexit vote and the "significant improvement in global growth prospects, particularly in Europe". "Whilst these developments appear to have boosted sentiment among manufacturing firms according to recent PMIs, we aren't seeing this being translated into the official data," he said.

Surveys covering the start of the current quarter have suggested manufacturers are being buoyed by strong overseas demand. If those reports are confirmed, that could help the economy as inflation squeezes the pockets of consumers and Brexit uncertainty weighs on the investment outlook.

Construction output posted a surprise 0.1 per cent decline in June and the trade deficit widened to a nine-month high of £4.6 billion (S$8.2 billion) as exports slid and imports climbed. For the second quarter as a whole, industrial output fell 0.4 per cent, unrevised from the estimate in last month's GDP release. Construction declined 1.3 per cent instead of 0.9 per cent, reducing GDP by a negligible 0.01 per cent.

The economy grew just 0.3 per cent in the second quarter, half the pace of the euro region, and economists predict a similar expansion in the second half - weak enough for the Bank of England to keep interest rates at a record-low for now.

Separate trade figures showed the value of exports falling 0.7 per cent in June, with shipments of goods alone dropping 2.8 per cent. Total imports rose by 3.3 per cent. The deficit in the second quarter was little changed at £8.9 billion, suggesting net trade made no contribution to growth in the period.

A report by BOE regional agents this week suggested the weak pound is increasingly leading companies and consumers to choose British products over pricier foreign alternatives. Growth in core import volumes slowed to an annual pace of 4.5 per cent in the second quarter from 7.4 per cent in the first. Export growth was little changed at 6.2 per cent. BLOOMBERG