UK manufacturing output continues to improve, trade deficit narrows

Oliver Haill WebFG News | 10 Nov, 2017 10:43 | | |

ricardo engine manufacturing

UK industrial production is increasing more than expected and the trade deficit is narrowing, a deluge of official figures showed on Friday, with manufacturing activity continues to grow but the construction sector entered a technical recession.

Industrial production rose by 0.7% month-on-month in September, the Office for National Statistics revealed, up from 0.4% a month earlier and above the consensus forecast of 0.3%.

Production for the third quarter was also now estimated to have increased by 1.1% quarter-on-quarter, up from 1.0% as September’s production was revised up from the 0.3% expansion pencilled in by the ONS in its preliminary estimate of GDP.

This the sixth monthly increase in a row and was thanks to a 0.7% increase in manufacturing production, similarly beating a 0.3% consensus and up from 0.4% last time.

A 2.2% rebound in mining and quarrying output, following a two month lull, also contributed, offsetting flat output in the energy supply sector and a 0.1% fall in water.

Meanwhile, UK construction output slumped 1.6% in September, way worse that the 0.3% expected after an August that was revised up to 0.8% growth and larger than the 1.0% drop the ONS had initially pencilled in its quarterly estimate.

On last year, construction output rose 1.1%, short of the 2.2% forecast and down from a revised 3.9% rise for August.

In trade data, export volumes fell by 1.8% on the quarter, compared with a 1.9% quarterly rise in imports.

The visible deficit narrowed to £11.25bn in September from £12.35bn, albeit with net trade still looking to have acted as a drag on the economy over the third quarter as a whole, while the total trade balance narrowed to £2.75bn from a revised £3.46bn, better than the widening to £4.3bn that had been forecast.

Exports of goods to EU countries increased by £0.9bn or 2.2% in the third quarter, but exports to non-EU countries fell by £1.7bn or 3.8%.

Industrial production six consecutive monthly rises is a feat last achieved 23 years ago, noted economist Samuel Tombs at Pantheon Macroeconomics.

With third-quarter production now estimated to have increased by 1.1%, Tombs pointed out that production accounts for just 14% of GDP, "so this amendment is too small to suggest that GDP growth likely will be revised up later this month".

"Looking ahead, however, the recovery in manufacturing output likely will weaken in response to the recent surge in the oil price. In addition, output in the energy supply sector likely plunged by about 4% month-to-month in October, due to unseasonably warm weather.

"Accordingly, it’s unlikely that industry can be counted on to support GDP growth again in Q4."

Chris Williamson, chief business economist at IHS Markit, said official data was now confirming the UK was a multi-speed economy, with manufacturing enjoying strong growth and construction in the doldrums, entering a new technical recession.

"It’s encouraging to see sectors such as machinery and equipment recording strong growth in the third quarter, where output was up 3.0%, as this is a good indicator of rising business investment. It remains unclear, however, as to how much of this was exported or intended for domestic customers," he said.

For Ruth Gregory at Capital Economics, the data suggested the industrial sector was helping to offset the consumer slowdown, adding 0.2pp to GDP growth in the third quarter relative to the second but with the weaker construction contribution resulting in a minimal impact on the overall GDP numbers for Q3.

She said the trade figures "made for pretty disappointing reading", with a fall in export volumes, "which is what matters for GDP growth", compared to a rise in imports.

"This suggests that net trade probably subtracted 0.5pp or so from GDP in Q3. Nonetheless, annual growth in export volumes was still a punchy 15% in September.

"And surveys suggest this strength should continue, while import growth should slow in line with weakening consumer spending growth. So we remain optimistic that net trade will provide more support to growth in the quarters ahead."

More news

00:20 US close: Wall Street mixed ahead of Thanksgiving holiday

Wall Street finished mixed on Wednesday, following the record highs set the day before and amid lighter-than-usual trading volumes ahead of the Thanksgiving holiday on Thursday.

22 Nov Jefferies upgrades Kingfisher to 'buy', raises target price

Analysts at Jefferies upgraded home improvement products retailer Kingfisher (KGF) to 'buy' from its previous 'hold' rating on Wednesday, raising its target price from 310p to 400p along the way.

22 Nov Europe close: German stocks give back gains amid political impasse

Stocks ended the session modestly lower as traders waited for the release of the minutes of the US Federal Reserve's last rate-setting meeting in the evening and monitored the news-flow out of Germany, amid speculation that a 'grand coalition' between Germany's two main political parties, the centre-right CDU/CSU and the Socialist SPD, may yet be possible.

22 Nov Lebanon prime minister Hariri retracts resignation

Saad al-Hariri has revoked his resignation as Lebanon's prime minister, according to a local news report on Wednesday.

22 Nov Budget: Planning probe spooks builders, mixed reaction for stamp duty cut

A range of new housing policies were proposed by Chancellor Philip Hammond in his Budget statement, including more funds for smaller housebuilder, a probe into potential holding of land by major housebuilders and a stamp duty cut for first-time buyers.

22 Nov US open: Shares hold ground ahead of FOMC minutes

Wall Street is holding its ground following the record highs set the day before, albeit amid lighter than usual trading volumes ahead of the Thanksgiving Holiday on Thursday, with investors looking to the release of the minutes of the most recent meeting of the Federal Open Market Committee.

22 Nov London close: Stocks higher on UK budget

Shares closed higher on Wednesday as investors sifted through corporate releases as well as the Autumn Budget.

22 Nov FTSE 250 movers: Qinetiq boosted by Berenberg note as Thomas Cook tanks

The FTSE 250 index was up around 0.50% on the day in which Chancellor Philip Hammond revealed his budget for the upcoming year.

22 Nov Higher margins offset declining sales volumes at Cambria

Motor dealer Cambria Automobiles managed to successfully grow profit and revenue throughout the financial year, as per-unit profits counteracted a slide in sales volumes.

22 Nov First production at Texas asset transforms Pantheon Resources into full-cycle energy and power business

Oil and gas exploration firm Pantheon Resources announced "another year of progress" in its full-year results on Wednesday, as it completed the transition from a pure-play exploration company to a full-cycle energy and power business.