UK factories, builders cut output, clouding growth outlook

London - UK factories and construction firms unexpectedly cut output in May, casting doubt over the performance of the economy in the second quarter.

Manufacturing fell 0.2% from April as vehicle production dropped the most in more than a year, the Office for National Statistics said on Friday. Total industrial production declined 0.1%. Building output shrank by 1.2%.

There was also disappointing news on trade, as the deficit widened more than expected to 3.1 billion pounds. Imports of goods rose 3.9 percent, far outstripping a 0.9 gain in exports.

The figures raise questions about the extent of any pickup in the economy after growth slumped to 0.2 percent in the first three months of the year. Economists surveyed by Bloomberg predict an expansion of 0.4 percent between April and June.

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. It complicates the decision facing Bank of England policy makers over when to raise interest rates to combat surging inflation.

The latest figures underline just how reliant Britain is on its giant services sector, itself coming under pressure from the fall in real incomes.

Questions raised

Industrial production needs to expand by 1.4% in June, the most since November, to avoid shrinking in the second quarter. Output fell 1.2% in the latest three months.

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

Whether the economy gets a boost from trade is also open to question. The deficit in the second quarter will widen if June sees a shortfall of more than £3.7bn.

Car production

Downward pressure on manufacturing in May came mostly from motor vehicles, which fell 4.4%, the most since February 2016. The ONS said it was not aware of any loss of production caused by maintenance.

Factories have had a boost from the sharp fall in the pound since the Brexit vote - the value of goods’ exports rose an annual 16% in the first five months of 2017.

But recent trade figures have been distorted by movements of non-monetary gold. An underlying measure, volumes excluding oil and erratic items, showed exports rising 3.3% in the latest three months compared with a 1% gain in imports.

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