Published: Mon, July 10, 2017
Economy | By Melissa Porter

UK Industrial & Construction Output Fall Unexpectedly

UK Industrial & Construction Output Fall Unexpectedly

Capital Economics analyst Jennifer McKeown said the data supported expectations that the German economy accelerated sharply in the second quarter after expanding by 0.6 percent in the first three months of the year.

In a separate communique, the ONS said the trade deficit widened by GBP 1 billion to GBP 3.1 billion in May, reflecting an increase in imports of goods.

Output in the sector also fell 1.2 per cent in the three months to May, its fourth quarterly fall in a row, and its biggest drop since September 2012.

Samuel Tombs, chief United Kingdom economist at Pantheon Macroeconomics, said the industrial production data increased the likelihood of the Bank of England's Monetary Policy Committee keeping interest rates on hold at 0.25 per cent.

Construction output has hit a nine-month low, according to official data. Manufacturing output was 0.4 percent higher than in May 2016.

Moreover, the warmest May for nine years saw gas supplies drop 1.5 per cent on the month, as demand for heating took a tumble, pushing industrial production lower. A decrease in services exports also contributed to the fall.

UK Industrial & Construction Output Fall Unexpectedly
UK Industrial & Construction Output Fall Unexpectedly

The Bank of England has sent mixed messages on rates, although the consensus is that in the case of the Bank hiking the base rate this year, it will only raise it by a small 0.25 per cent to bring it back to 0.5 per cent.

Political instability, the start of Brexit talks and the strain on consumers from the rising cost of living are weighing on the prospects for investment and consumer spending, with recent PMI surveys pointing to a loss of momentum going into the second half.

Industrial production needs to expand by 1.4 per cent in June, the most since November, to avoid shrinking in the second quarter.

The ONS confirmed that although output remains at a relatively high level, total real construction output fell by 1.2 percent on both a monthly and 3-month on 3-month basis in May.

Construction, meanwhile, would require an unprecedented expansion of 5.5 per cent to break even during the quarter.

Vehicle production has been its strongest for 17 years in 2017 on the back of exports, but fell almost 10 per cent in May.

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