Poor figures for May point to weaker UK growth

The growth of the UK economy is likely to be weaker than forecast in the second quarter of the year after industrial production, construction output and net trade fell more than expected in May.

The figures from the Office for National Statistics are a blow to hopes that higher exports and manufacturing would offset a potential slowdown in consumer spending. The pound fell 0.67 per cent against the dollar to $1.2883 in afternoon trading.

The data is likely to give pause to the Bank of England’s monetary policy committee as it considers whether to raise interest rates.

“This morning’s flurry of UK economic releases added a further dose of pessimism to our assessment of the UK economy’s performance through the second quarter,” said Victoria Clarke, an economist at Investec bank.

“Our forecast of a modest pick-up in (GDP) growth in quarter two, to 0.3 per cent, from 0.2 per cent in quarter one, looks to be on less solid ground now,” Ms Clarke said.

Many other economists had forecast the economy would grow by about 0.4 per cent in the second quarter.

During May industrial production dropped 0.1 per cent compared with the previous month; analysts had expected it to grow by 0.2 per cent. In April, output fell 0.8 per cent.

Eurozone data published on the same day reported higher industrial production than expected in France, Germany and Spain.

A reduction in manufacturing output was one of the main reasons UK industrial production fell: the sector contracted by 0.2 per cent compared with the month before.

Motor vehicle manufacturing was particularly weak: output fell 4.4 per cent during the month. The Society of Motor Manufacturers and Traders said new car registrations figures fell for the third month in a row in June.

There are signs consumers are spending less on new cars because of tighter household finances due to inflation and low wage growth and the increasing cost of credit.

Construction output fell 1.2 per cent during May, the second consecutive monthly decline. Analysts had expected it to rise 0.6 per cent month-on-month.

Together, manufacturing and construction account for about 20 per cent of the UK economy.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the construction sector was “feeling acutely the adverse impact of Brexit . . . on the willingness of households and firms to make long-term financial commitments”.

Housebuilding, infrastructure and commercial construction were all down during May.

Kate Davies, senior statistician at the ONS, said that although the declines in construction and industrial output were small, the underlying position was weaker: both series have fallen in the past three months compared with the previous three.

“Meanwhile the total trade deficit widened by £2bn in the most recent three months, primarily due to high imports especially from outside the EU,” she said.

The deficit increased to £8.9bn in the three months to May, as prices of imports from outside the EU rose 0.5 per cent while export prices remained flat.

The National Institute of Economic and Social Research also published its prediction for growth in the second quarter of the year on Friday. Its central forecast is 0.3 per cent.

In the first quarter of the year, growth slowed to 0.2 per cent due to weakness in consumer services including retail and accommodation. The think-tank predicted that these sectors will not be as weak in the second quarter and offset some of the decline in industrial production and construction.