Surprise drop in UK factory output in April

LONDON • 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 early in the year is persisting.

Sterling slid by more than half a cent against the dollar after yesterday'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 (BoE) deputy governor Dave Ramsden, who said data until that point suggested the economy's weak start to this year would prove temporary.

The BoE said last month 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 per cent month-on-month in April after a 0.1 per cent decline in March - a bigger drop than any economist had forecast in a Reuters poll that pointed to growth of 0.3 per cent.

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 per cent on the month. A 1.8 per cent 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," said Investec economist Philip Shaw.

He added that 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."

The ONS described international and domestic demand as subdued. Trade data was similarly downbeat. Britain's goods trade deficit with the rest of the world rose unexpectedly to £14.035 billion (S$25 billion), the biggest since September 2016, from £12.003 billion in March. The figures also showed the construction sector failed to rebound after a dire start to the year.

Construction output rose 0.5 per cent month-on-month in April after a 2.3 per cent 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 per cent quarter-on-quarter in the January-March period, despite a 15.2 per cent surge in housing orders, the ONS said.

REUTERS

A version of this article appeared in the print edition of The Straits Times on June 12, 2018, with the headline 'Surprise drop in UK factory output in April'. Print Edition | Subscribe