UK manufacturing hit by car shutdowns, trade deficit surges

British manufacturing output in July contracted by 0.8 per cent from June, after it was hit by an earlier than usual summer shutdown of vehicle production lines.
British manufacturing output in July contracted by 0.8 per cent from June, after it was hit by an earlier than usual summer shutdown of vehicle production lines.PHOTO: REUTERS

LONDON (REUTERS) - British manufacturing output fell hard in July, hit by an earlier than usual summer shutdown of vehicle production lines, and the country's trade deficit widened sharply, official data showed on Wednesday.

Output in manufacturing contracted by 0.8 per cent from June, contrasting with a forecast for a 0.2 per cent increase in the Reuters poll of economists.

The weak factory numbers dragged down overall industrial output which showed a fall of 0.4 per cent in July when economists had expected a slight increase on the month.

Britain's manufacturers have struggled to make much headway this year thanks to a combination of weak demand in Europe and other economies around the world and the strengthening of the pound.

A group representing the sector said this week it had halved its forecast for growth this year after overseas orders fell to their lowest since the financial crisis.

The weakness in manufacturing has increased Britain's dependence on its dominant services sector to power growth in the economy, complicating the challenge for the Bank of England as it ponders when to start raising interest rates.

The Office for National Statistics (ONS) said manufacturing suffered its first fall in yearly terms in July since August 2013.

"The biggest single factor in the fall in manufacturing was motor vehicle production, with the summer shutdowns appearing to start earlier than usual, along with anecdotal evidence showing a slowdown in exports," ONS chief economist Joe Grice said. "There has also been a fall-back in the manufacture of weapons, following a big rise in June."

Separate data from the ONS showed Britain's deficit in its trade in goods ballooned to 11.082 billion pounds (S$24.14 billion) in July, the biggest shortfall in a year.

Exports of goods dropped by more than 9 per cent, the biggest fall in percentage terms since July 2006.

Including Britain' surplus in services, the overall deficit widened to 3.371 billion pounds, four times its level in June, but in line with its level in the early months of 2015.

The ONS linked the fall in exports to weaker sales of chemicals and manufactured goods, as shown in the manufacturing data.

Britain's trade deficit narrowed sharply between April and June and helped boost overall economic growth in the period. But economists have previously said the improvement is unlikely to last, due to the combination of weak demand in many countries and the strength of sterling.