Britain’s industrial output fell in August and the trade deficit widened, according to official figures that break a run of upbeat reports on the UK’s post-referendum economy.
The reports were weaker than economists had been predicting but they said the UK economy remained on course to avoid a downturn in the Brexit vote’s aftermath by a significant margin.
The Office for National Statistics said industrial production fell 0.4% in August after a 0.1% increase in July. That compared economists’ forecasts of another 0.1% increase, in a Reuters poll. But there was evidence that exports were helped by the weak pound, which touched new 31-year lows against the dollar on Friday amid worries over the UK’s prospects outside the EU.
Within the industrial sector, manufacturers raised output by 0.2% on the month, boosted by car production. But output fell in other parts of the industrial sector in August.
“Manufacturing output was up slightly in August with more cars built, with limited evidence suggesting the lower pound boosted exports,” said the ONS’s senior statistician, Kate Davies. “Nevertheless, this was offset by a fall in oil and gas production, with some field shutdowns contributing to the fall, meaning UK production as a whole was down.”
Following the figures, the thinktank, the National Institute of Economic and Social Research (NIESR), estimated economic growth slowed in the third quarter to 0.4%, from 0.7% in the second quarter.
“While retail sales have been buoyant in recent months, the production sector has acted as a drag on economic growth,” said James Warren, research fellow at NIESR.
Separate figures showed the UK’s trade deficit with the rest of the world widened in August as exports continued to rise but imports grew at a faster rate.
Concerns about the UK’s trading prospects have risen this week after comments from ministers suggested the government could pursue a hard Brexit deal that limits immigration but leaves Britain shut out from the single market. Those fears have helped knock the pound sharply lower on foreign exchanges.
Liam Fox, international trade secretary, insisted the government was “working hard to ensure the UK remains an attractive place with which to trade and to help UK companies take advantage of the global demand for British goods and services”.
“While some sectors continue to perform well, there is still some way to go to ensure that we are exporting as much as we could and should do, so the government will continue to encourage and support the wider range of exporting we require to boost our national prosperity,” Fox said.
But businesses and lobby groups say the government should do more if it wants to come anywhere close to a goal to almost double UK exports to £1tn by 2020 – a target it is widely expected to miss.
“The chancellor’s autumn statement needs to include measures that support businesses looking to access new export markets, including expanding support for trade fairs and missions, to at least match that provided by our competitors,” said Mike Spicer, director of research and economics at the British Chambers of Commerce.
The ONS estimated the UK’s deficit on trade in goods and services at £4.7bn in August, a widening of £2.5bn from July. Exports increased by £0.1bn and imports increased by £2.6bn.
The deficit on trade in goods alone was £12.1bn, widening by £2.6bn from July and worse than the £11.3bn gap forecast by economists in the Reuters poll. The deficit on trade in goods with EU countries hit a record high of £8.4bn as imports from the bloc rose 5.1% and exports fell 0.6%.
The two reports on trade and industrial production follow signs in surveys that businesses had rebounded from the initial shock of June’s vote to leave the EU. Statisticians caution against over-interpreting any one month’s figures, however.
The data will give Bank of England policymakers more to chew over when they meet next month to decide whether to cut interest rates further from the already record low of 0.25%. The Bank’s monetary policy committee reduced borrowing costs and expanded an electronic money-printing scheme in August to shore up confidence after the Brexit vote.
Commenting on the latest official figures, Scott Bowman at the consultancy Capital Economics said: “While these figures break the recent run of positive data for activity in the third quarter, the overall strength of recent data has probably lowered the chance of further monetary easing from the MPC.
“But committee members have previously warned against over-interpreting incoming data – including Ben Broadbent in his speech this week – so we still think that there is a decent chance that the bank rate will be cut to 0.10% in November.”
