The U.K. economy ended the second quarter on a disappointing note as manufacturing stagnated and the trade deficit unexpectedly widened.
Manufacturing was unchanged in June as production of vehicles plunged 6.7 percent, the most since the end of 2013, according to the Office for National Statistics. That means factory output hasn’t grown in any month this year.
James Smith, an economist at ING in London, said the stagnation in manufacturing is “particularly concerning” given the pound’s decline since the Brexit vote and the “significant improvement in global growth prospects, particularly in Europe.”
Surveys covering the start of the current quarter pointed to manufacturers being buoyed by strong overseas demand. But an estimate from the National Institute of Economic and Social Research published Thursday suggests growth slowed to 0.2 percent in the three months through July from 0.3 percent in the period through June. That’s “well below” its long-run trend of 0.6 percent, it said.
“We see a modest recovery in the second half” because of stronger global growth and a weaker currency, said Amit Kara, head of U.K forecasting at Niesr. “But on the flip side, consumer spending is likely to be weighed down by weak wage growth and investment spending held back by Brexit-related uncertainty.”
The ONS data showed construction output posted a surprise 0.1 percent decline in June and the trade deficit widened to a nine-month high of 4.6 billion pounds ($6 billion) as exports slid and imports climbed. Total industrial production rose 0.5 percent, more than economists forecast, but that was due to higher oil production as summer maintenance shutdowns at oil fields failed to materialize.
For the second quarter as a whole, industrial output fell 0.4 percent, unrevised from the estimate in last month’s GDP release.
Separate trade figures showed the value of exports falling 0.7 percent in June, with shipments of goods alone dropping 2.8 percent. Total imports rose by 3.3 percent. The deficit in the second quarter was little changed at 8.9 billion pounds, suggesting net trade made no contribution to growth in the period.
“The volatility in the trade data makes it difficult to draw any firm conclusions about the underlying trend, though when taken alongside the upbeat export surveys, the prospects for the second half of the year look a little brighter,” Dan Hanson and Jamie Murray, economists at Bloomberg Intelligence, said in a note on the latest data. “The jury is still out on the ability of the U.K. economy to rebalance.”