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 ($11.77 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.

Economists had predicted that in May Britain would have run a trade deficit of around £2.5 billion with the rest of the world, but the actual figure was £3.1 billion.

The news will disappoint Bank of England policymakers who had hoped that an improvement in exports and investment would compensate for a reining in of consumer spending in recent months.

However Allie Renison, head of Europe and trade policy at the Institute of Directors, said the continued rise in imports showed that domestic demand remained strong.

“It also suggests firms don’t yet feel the need to turn to import substitution, although such an option may not even be open to many due to the specific nature of what they are importing,” she added.

Separately, manufacturing output edged down by 0.2% in the month, cancelling out its rise in April and disappointing forecasts for a modest rise.

The figures were dragged down by a fall in car production, which dropped by 4.4%—the biggest slide since February last year and tallying with industry figures showing a fall in new car registrations.

Wider UK industrial output also unexpectedly contracted by 0.1% in May after a 0.2% rise in April, and against expectations for a 0.4% increase.

Sterling also fell 0.7% against the dollar as analysts suggested an early interest rate rise was now less likely, BBC reported.

The slip calls into question the economic outlook going into the second half of 2017, as the British economy struggles to bounce back from a slowdown earlier this year.

Construction Declines

In a further blow, UK construction output fell by 1.2% in May and by 0.3% on the year, which the ONS blamed on “falls in both repair and maintenance, and all new work”.

Forecasts had pointed to growth of 0.7% on the month and 1.1% on the year. It also fell by 1.2% in the March to May quarter, the sharpest such drop since October 2015.

Michael Thirkettle, chief executive of construction and property consultancy McBains Cooper, said the fall in output was “extremely unwelcome news for an increasingly fragile-looking construction industry”.

Kate Davies, senior statistician at the ONS, said: “Activity in the production sector was broadly unchanged in May, though the underlying position is weaker with both total output and manufacturing falling in the three months to May compared with the previous three months.

“Construction output also fell on a three-monthly basis, though this is after several years of growth.”

Brexit Extremism

A new survey has shone a light on how entrenched people in the UK have become since the Brexit referendum.

The YouGov poll has revealed a trend of ‘Brexit extremism’—where those on both sides of the political divide are prepared to go to drastic lengths to have their views vindicated.

Six-in-ten of those who voted to leave the EU say they consider damage to the UK economy a price worth paying for quitting the bloc.

More than a third of remainers would be prepared to see the economy suffer if it meant Britain stayed in the EU. Nearly one fifth of those who voted to stay remain would be happy to see economic damage ‘to teach leave voters a lesson’.

Matthew Smith, a data journalist at YouGov, wrote: “The research shows that Brexit extremism is by no means restricted to leave voters. One accusation that some have leveled at remainers is that they want to see economic harm come to Britain, either to avert Brexit or out of sheer vindictiveness for having lost the referendum.”