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U.K. Industrial Output Remains Flat; Trade Gap Widens

U.K. Industrial Output Remains Flat; Trade Gap Widens
7/9/2013 7:51 AM ET

Stagnant industrial production as well as a widening trade deficit have raised concerns over the expected strength of the U.K. economic recovery.

Industrial production remained flat in May from April, when it fell 0.1 percent, data from the Office for National Statistics showed Tuesday. Economists had forecast industrial output to grow 0.2 percent in May.

At the same time, the main component of industrial output, manufacturing, fell for the second consecutive month. The unexpected 0.8 percent decline in manufacturing output was sharper than the 0.2 percent fall seen in April and came in contrast to the 0.4 percent rise forecast by economists.

On a yearly basis, industrial output was down 2.3 percent, deeper than the 1.4 percent drop logged in the previous month. The decline reflected a 2.9 percent drop in manufacturing and 3.5 percent fall in mining and quarrying output.

But a 4.9 percent increase in crude oil and gas output coupled with a 3.6 percent rise in water supply underpinned overall production.

Industrial and manufacturing production were expected to have declined by 1.5 percent and 1.6 percent, respectively.

If U.K. GDP growth in the second quarter is going to come in around 0.6 percent quarter-on-quarter, it will have needed a robust contribution from the services sector and, hopefully, a rare recent positive contribution from construction, IHS Global Insight's Chief U.K. Economist Howard Archer noted.

Another report from the ONS showed that the visible trade deficit widened marginally in May. The appreciable increase in oil exports helped to limit the increase in deficit.

The visible trade shortfall for May was GBP 8.5 billion compared to GBP 8.4 billion a month ago. Economists were looking for a GBP 8.485 billion shortfall.

Goods exports grew 1.5 percent monthly, while imports rose 1.3 percent. Within the merchandise trade, there was an appreciable increase in the level of oil exports in May, mainly due to sales of crude oil to the Netherlands, the ONS said. Oil exports surged 27.2 percent.

The surplus on trade in services fell to GBP 6.1 billion from GBP 6.4 billion. Consequently, the total trade gap increased to GBP 2.4 billion from GBP 2.1 billion in the previous month.

The overall economic recovery may still have gathered pace in the second quarter, Samuel Tombs at Capital Economics said. But neither industry nor trade seem likely to make much of a contribution to GDP growth in the second quarter, the economist added.

by RTT Staff Writer

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