UK data shows Brexit effect

Signs that Britain’s economy is slowing as it prepares to leave the EU hardened yesterday, as official data showed a surprise drop in industrial output and construction in February, and a mixed performance for trade.

Sterling slid to a one-week low against the dollar after industrial output dipped 0.7% in February, worse than all forecasts in a Reuters poll of economists, which had pointed to a 0.2% increase. Output fell 0.3% in January.

A surprisingly large goods trade deficit — albeit distorted by imports of high-value goods like gold and aircraft — and a slump in construction added to evidence that Britain’s economic growth rate peaked toward the end of last year.

Britain’s National Institute of Economic and Social Research estimated that yesterday’s data suggested growth in the first three months of 2017 would slow to 0.5% from a robust 0.7% in the last three months of 2016.

There are already signs that rising inflation, caused in part by the pound’s post-Brexit vote tumble, is crimping spending by consumers, the main drivers of the economy, just as prime minister Theresa May begins Britain’s EU divorce talks.

Underlining the caution among households, mortgage lender Halifax reported the weakest house price growth in nearly four years, and a survey of recruiters showed staff were nervous about switching jobs ahead of Brexit.

Bank of England governor Mark Carney said he would keep a close eye on whether consumer demand weakens in line with the central bank’s expectations.

“Today’s deluge of UK economic data was fairly disappointing and adds to the evidence that the economy has lost some momentum during the first quarter,” said Ruth Gregory, economist at Capital Economics.

The latest data from the UK’s Office for National Statistics suggested manufacturing was not making up for a consumer spending slowdown as some economists had hoped following the pound’s drop.

Output in manufacturing, a component of industrial output which accounts for about 10% of Britain’s GDP, unexpectedly fell 0.1%, disappointing against forecasts for a 0.3% rise in the Reuters poll. The ONS also released figures for construction output in February, which slumped 1.7% — the biggest drop in almost a year.

From Irish Examiner (8/4/2017)