UK economy slows as global worries, Brexit weigh on factories

UK economy slows as global worries, Brexit weigh on factories

Reuters  | Jan 11, 2019 16:56

UK economy slows as global worries, Brexit weigh on factories

By Andy Bruce and David Milliken

LONDON (Reuters) - Britain's economy grew at its weakest pace in half a year in the three months to November as factories suffered from tough global trade conditions and the approach of Brexit, official data showed on Friday.

Gross domestic product was 0.3 percent higher than in the previous three-month period, down from growth of 0.4 percent in the three months to October and matching the consensus of a Reuters poll of economists.

Manufacturers suffered their longest period of monthly declines in output since the financial crisis, hurt by weaker overseas demand, the Office for National Statistics said.

Looking at November alone, industrial output dropped 1.5 percent on the year -- the biggest fall since August 2013.

Worries about the global economy have been mounting due to concerns about a trade war between the United States and China. Figures from Germany and France earlier this week also showed falling industrial output.

"There may well be a common theme which is hurting the factory sector throughout Europe, for example changes in the auto industry," Investec chief economist Philip Shaw said, adding that Brexit worries were also weighing on investment.

Carmakers across Europe have suffered from a fall in demand for diesel vehicles due to pollution concerns.

Sterling and British government bonds were little changed by Friday's figures.

The figures fit with business and consumer surveys that suggest the economy is slowing sharply after robust growth of 0.6 percent in the third quarter of the year, reflecting growing uncertainty ahead of Brexit, as well as global jitters.

Britain is due to leave the EU on March 29 and whether businesses will still be able to trade without disruption to cross-border supply chains remains unclear.

Prime Minister Theresa May risks losing a parliamentary vote on Tuesday on the deal she has agreed with the EU. Defeat would leave open the prospect of Britain leaving the EU without any transitional arrangements to smooth the economic shock.

Compared with a year earlier, Britain's economy was 1.4 percent larger. In November alone, it expanded 0.2 percent, compared with forecasts for a rise of 0.1 percent.

The Bank of England says the economy is likely to have grown around 0.2 percent over the fourth quarter of 2018.

Closely watched purchasing managers' surveys have pointed to fourth-quarter growth of around 0.1 percent in Britain, according to data firm IHS Markit which compiles the surveys.

After the data, forecasters at the National Institute of Economic and Social Research, a think tank, downgraded their fourth-quarter growth forecast to 0.3 percent from 0.4 percent but predicted 0.4 percent growth for the first quarter of 2019.

"The risks to our forecasts however, are tilted to the downside because of Brexit," Amit Kara, an economist at NIESR, said.

Britain's economy slowed after the June 2016 Brexit vote, its growth rate slipping from top spot among the Group of Seven group of rich nations to mid-table or lower.

An unusually warm summer and the soccer World Cup spurred a pick-up in mid-2018 but retail sales data suggest consumers reined in spending late last year.

Britain's services sector grew by 0.3 percent over the three months to November, while industrial output dropped by 0.8 percent, the biggest decline since May 2017.

© Reuters. Worker examines an aluminium component inside Produmax in Shipley

Separate figures showed Britain's goods trade deficit widened unexpectedly in November to 12.0 billion pounds from 11.9 billion pounds, worsened by the highest oil imports since September 2014.

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