UK Economy Suffers Triple Blow

The UK economy has suffered a triple blow as the latest trade data showed little evidence that there is a rebalancing towards manufacturing and exports.

Britain’s trade deficit widened to £8.9 billion ($11.47 billion) in the three months to May, from £6.9 billion in the previous quarter, thanks to a jump in the goods and services that the country is importing, news outlets reported.

The widening deficit in May reflected a higher rise in imports than in exports of goods, particularly cars, aircraft and ships, and oil and electrical machinery from non-EU countries, the Office for National Statistics said. A decrease in services exports also contributed to the fall.

The pound has fallen after disappointing manufacturing, trade and construction data suggested the UK economy is failing to gain momentum.

Recent weeks have seen speculation that the Bank of England could raise rates later this year. This followed a surprisingly close vote on interest rate levels at the bank’s last meeting, when three members of the Monetary Policy Committee backed a rate rise.

In addition, the Bank of England’s chief economist, Andy Haldane, said last week it needed to “look seriously” at the possibility of raising interest rates to counter the recent pick-up in inflation, BBC said.

However, reacting to the latest economic figures, Peter Dixon, an economist at Commerzbank, said: “It’s all building up a pattern here that says the economy is clearly losing momentum.

“It’s not pointing to a particularly dynamic second quarter. Under those circumstances, the timing of the hawks on the Monetary Policy Committee pushing for a rate hike doesn’t look great.”

The ONS figures showed that manufacturing output fell by 0.2% compared with April, whereas analysts had expected it to rise. The sector was hit by a 4.4% drop in car production—the biggest fall since February last year.

The wider measure of industrial output fell 0.1% following a 0.2% rise in April. Construction output was also worse than expected. It fell by 1.2% in May from April, and was also down 1.2% in the three months to May—the sharpest such drop since October 2015.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics said: “The construction sector now is feeling acutely the adverse impact of Brexit uncertainty on the willingness of households and firms to make long-term financial commitments.

“It’s extremely unlikely that overall GDP growth accelerated in Q2 to the extent required to convince the Monetary Policy Committee that higher interest rates are needed immediately.”