GDP stays sluggish after manufacturing dive
UK economic growth remains super sluggish, official figures confirmed on Monday, held back by an unexpectedly steep decline in manufacturing activity.
Gross domestic product in October increased 0.1% compared to the preceding month, which economists had expected after two flat months. On a three-month basis, GDP growth in the period from August to October slowed to 0.4%, from 0.6% in the three months to September, which also matched the consensus forecast.
Industrial production unexpectedly fell 0.6% month-on-month, dragged down by a 0.9% collapse in manufacturing output. The manufacturing decline reflected a big drop in pharmaceuticals output and slower car production.
Year on year, industrial production was down 0.8% in October after being flat in September, while manufacturing was down 1.0% after rising 0.5% a month ago.
Services output remained positive, with the index of services up 0.3% on a three-month basis, as expected, following a 0.4% rise last time.
Construction output slipped 0.2% month-to-month in October, reversing a fraction of the previous month's 1.7% jump.
Meanwhile, October saw the goods trade deficit widen to £11.87bn from £10.68bn, adding to the gloomier economic picture. The total trade balance widened to £4.25bn from £2.95bn.
Exports of goods fell 1.8% during the month, down 0.1% in the latest three months versus the prior three months, while imports rose 3.8%, up 2.2% in the latest three months.
Economist Samuel Tombs at Pantheon Macroeconomics said the modest rise in GDP after two months of stagnation "confirms that the economy has lost momentum since the summer".
While the decline in manufacturing output reflected a plunge in pharmaceutical output, which often is volatile, the 0.4 percentage point of the drop in manufacturing output was driven but a decline in car production, reflecting the increased reluctance of consumers to make big financial commitments.
"As a result, manufacturing likely won’t fully reverse October’s drop in November," he said, also noting that the increase in services output partly reflected a rebound in car sales, after new emissions rules depressed them in September.
"The drop in the Markit/CIPS services PMI in November to its lowest level since the panic immediately after the referendum suggests month-to-month gains in output will slow."
Overall, Tombs said he continued to expect quarter-on-quarter GDP growth to slow to 0.2% in the fourth quarter from 0.6% in the third, with the Bank of England on hold at least until after the March deadline for Brexit.
Chris Williamson at IHS Markit said that the slower growth of spending and investment was "no surprise and is a rational response to intensifying Brexit uncertainty", which has been exacerbated by a broader global economic slowdown, especially in the eurozone.
“The outlook for growth therefore very much depends on Brexit developments over the coming days, weeks and months, and the surrounding uncertainty makes forecasting extremely difficult. However, what’s clearly evident is that the widely-expected slowing of the economy in the lead-up to the UK’s separation from the EU is now upon us, leaving the big question of whether the economy will bounce back alongside a smooth Brexit process or slide into decline," said Williamson.