World Economy

More Gloomy News for UK

More Gloomy News for UK  More Gloomy News for UK

Fresh evidence that Britain's economy has slowed at the start of the year came Saturday after industrial production saw its biggest fall in two and half years and the trade deficit remained ‘worryingly’ large.

The double whammy of disappointing figures added to other recent gloomy economic news, including the worst decline in productivity since 2008 and the services sector’s biggest slowdown in growth in three years last month, ThisIsMoney reported.

The pound dipped back below $1.41 following the weak data, although it was still up 0.1% on the day against the dollar following recent declines. Sterling was also slightly higher against the euro, at just below €1.24, having hit a near two-year low against the single currency Friday.

Output in manufacturing, which is the largest component of the UK’s industrial production, fell by 1.1% in February compared to January, and was down 1.8% in the year, the biggest drop since July 2013.

That was mostly due to a big drop in the manufacturing of transport equipment, which fell 2.9%, according to the Office for National Statistics.

This dragged on overall industrial output, which fell 0.3% in the month and 0.5% in the year to February, marking the biggest fall since the summer of 2013, the ONS said.

Unwelcome Shock

Looking at the three months to February, which gives a better sense of the underlying trend in what is often volatile data, industrial output contracted at its sharpest pace in over three years, shrinking by 1.5 per cent.

Production industries, which also include mining and quarrying, energy supply and water supply & waste management, account for about 15% of the economic output of the UK, a much smaller portion compared to the service sector, which makes up about three quarters of the economy.

Martin Beck, senior economic advisor to the EY ITEM Club said that the scale of the decline in February’s industrial production and manufacturing output was an ‘unwelcome shock’.

He said: "The weakness of manufacturing was particularly eye-catching, with January’s rise revised down and output then collapsing in February.

"While the weakening of the pound over the past six months should increasingly provide assistance, soft global growth is likely to limit the extent to which the export picture improves."

The pound has fallen about 7% versus the euro in the year to date, and has lost 12% against the single currency since last December, when it was trading at levels above €1.41.

British Chambers of Commerce chief economist David Kern said: "The worse than expected manufacturing figures for February reinforce our assessment that GDP growth in the first quarter of 2016 will show a slowdown compared with the fourth quarter.

"A healthy manufacturing base remains critical for the UK economy in areas such as productivity, innovation and exports."

Trade Deficit

Britain’s overall trade deficit, or the difference between total imports and exports, improved slightly in February at £4.8 billion ($6.78 billion), up £0.4 billion on January's revised number, but was still "worryingly large".

The trade deficit in goods narrowed in February to £12 billion after January's reading was sharply revised up, while the goods trade deficit with the European Union—Britain's biggest trading partner—hit a record high of £8.6 billion due to a record sum of imports in February, according to the ONS data.

Howard Archer, chief UK and European economist at IHS Global Insight, said that the UK trade and industrial data pointed to lower economic growth in the first quarter, which the research firm now expects to be no better than 0.4%, compared to 0.6% in the last quarter of 2015.

Archer said: "It is hard seeing any marked pick up in manufacturing activity happening in the near term at least, given domestic and global economic uncertainties."