Monday, 11 June 2018

Shock manufacturing slide casts doubt on UK economy's bounceback

LONDON (Reuters) - British factory output unexpectedly dropped in April at the fastest pace since 2012, due to weaker demand at home and abroad, raising concern that the economy’s weakness in early 2018 is persisting.

Sterling slid by more than half a cent against the dollar after Monday’s official data, which also showed the biggest trade deficit for goods since September 2016, widened by big falls in exports of aircraft, pharmaceuticals and machinery.

The figures do little to support comments last week by Bank of England Deputy Governor Dave Ramsden who said data until that point suggested the economy’s weak start to 2018 would prove temporary.

The BoE said in May that it did not intend to raise interest rates until it saw proof that the economy was on a firmer footing.

Manufacturing output dropped by 1.4 percent month-on-month in April after a 0.1 percent decline in March — a bigger drop than any economist had forecast in a Reuters poll that pointed to growth of 0.3 percent.

That marked the biggest fall since October 2012, the Office for National Statistics (ONS) said, driven by weakness in the electrical machinery and steel for infrastructure sectors.

The broader measure of industrial output fell 0.8 percent on the month. A 1.8 percent annual rise was weaker than all forecasts.

“It suggests that the rebound in GDP as a whole in Q2, if there is one, could be pretty subdued and it certainly questions the likelihood of another rate increase in August,” Investec economist Philip Shaw said.

He said weak data in Britain could be compared with recent disappointing figures from the euro zone.

“Certainly the figures at the end of last year were unusually buoyant and part of what we’ve seen seems to be payback. But there does seem to be something more insidious going on — perhaps a lack of confidence across industry due to trade concerns,” Shaw said.

The ONS described international and domestic demand as subdued.

Trade data were similarly downbeat. Britain’s goods trade deficit with the rest of the world rose unexpectedly to 14.035 billion pounds ($18.76 billion), the biggest since September 2016, from 12.003 billion pounds in March.

The figures also showed the construction sector failed to rebound as economists had hoped after a dire start to the year.

Construction output rose 0.5 percent month-on-month in April after a 2.3 percent drop in March, similarly undershooting all forecasts in the Reuters poll.

April capped the weakest three months for British construction since mid-2012. Separate figures for new construction orders showed little sign that a big rebound is on the way.

Overall orders fell 4.6 percent quarter-on-quarter in the January-March period, despite a 15.2 percent surge in housing orders, the ONS said.

Reporting by Andy Bruce and David Milliken

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