Firms and consumers are under pressure from rising prices, brought on by the fall in the pound after the Brexit vote.
Britain’s economy made a lacklustre start to the the second quarter, according to official figures on Friday that added to gloom about the UK’s growth prospects following the inconclusive election results.
Manufacturing output and broader industrial output made only small gains in April, dashing economists’ forecasts for a rebound for the economy after a slow start to 2017, which has put the UK at the bottom of the European growth league.
Firms and consumers have been under pressure from rising prices since last year’s Brexit vote knocked the pound sharply lower, making imports to the UK more expensive. Higher inflation has curbed consumer spending with knock-on effects for the wider economy.
The pound dropped again on Friday after the snap election called by Theresa May resulted in a hung parliament rather than the increased majority she had hoped to achieve ahead of Brexit negotiations with the rest of the EU.
The figures from the Office for National Statistics suggested the economy was already struggling before this latest bout of political uncertainty. They showed manufacturing output rose 0.2% in April after falling 0.6% in March. That was well below economists’ forecast for a 0.9% rise in a Reuters poll.
Output for the broader industrial sector, which also includes utilities and mining, also rose 0.2% in April, rebounding from a 0.5% fall in March but again below forecasts for 0.8%. Construction output also missed expectations but Britain’s trade performance improved.
The figures painted a picture of a “somewhat precarious UK economy”, said Jack Coy at the Centre for Economics and Business Research consultancy.
“With the service sector clearly stuttering, hopes of a stronger performance from the industrial sector failed to materialise this month. The trade figures provide some crumbs of comfort, but while the deficit narrowed in monthly terms, UK exports have shown little sign of picking up considerably so far in 2017,” he added.
Construction output was weaker than expected in April but figures for the first three months of 2017 were revised up. Britain’s trade deficit narrowed more than forecast in April as imports dropped sharply. There was little sign that the pound’s drop was helping drive up exports, despite making UK goods cheaper overseas. Export volumes slipped on the month.
The signs of a sluggish start to the second quarter follow news that the UK economy grew just 0.2% in the first quarter, making it the worst performer in the European Union and also bottom of the league among the world’s advanced economies. That was a stark contrast with the close of 2016 when the economy confounded predictions from the Bank of England and others for a post-referendum slump.
Construction output was weaker than expected in April.
The latest figures suggested the production and construction sectors were on course to provide a negligible contribution to GDP growth again in the second quarter, said Ruth Gregory at the consultancy Capital Economics. But she highlighted the narrowing in the trade deficit and recent business surveys that have pointed to a pickup for the manufacturing sector.“Looking ahead, there is clearly a risk that today’s election result causes growth to weaken towards the end of the second quarter,” Gregory added.
“That said, this is unlikely to spell disaster since the economy has proved pretty resilient to political uncertainty in the recent past.”
Samuel Tombs at the consultancy Pantheon Macroeconomics said the latest batch of official figures was consistent with slow growth again in the second quarter.
“April’s modest rise in industrial production reverses only a tiny fraction of the 1.8% fall between December and March and so will increase concerns that the overall economy is stagnating,” he said.
“Looking ahead, we expect manufacturing output to revive slowly, as moderate growth in exports offsets weakness in domestic demand. Even so, industrial production is on track to barely rise at all again in the second quarter, ensuring that overall GDP growth struggles to better the first quarter’s 0.2% rise,” he said.
Some business surveys have suggested exports have been boosted by the weaker pound and stronger global demand. But the official trade figures for April showed export volumes fell 0.1% while import volumes dropped 5.1%. That helped narrow the deficit on Britain’s goods trade to £10.38bn from £12.05bn in March, better than forecasts for a £12bn trade gap.
Adding in the services sector, which includes activities such as banking and legal services, the deficit almost halved to £2.1bn from £3.9bn in March. But it widened over the three months to April compared with the previous three months on the back of a rise in the value of imports.
Source: https://www.theguardian.com/business/2017/jun/09/clouds-gather-over-uk-economy-as-more-data-points-to-lacklustre-growth#img-2
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