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UK Economy Contracts In November

ukgdp oct10 13jan20 lt

The UK economy contracted in November ahead of the general election, due to the weakness in services and industrial output, data from the Office for National Statistics showed Monday.

Gross domestic product dropped 0.3 percent month-on-month after rising 0.1 percent each in September and October. Economists had forecast GDP to remain flat.

In the three months to November, the economy grew 0.1 percent sequentially, after rising by a revised 0.2 percent in the three months to October.

Overall, the economy grew slightly in the latest three months, with growth in construction pulled back by weakening services and another lacklustre performance from manufacturing, ONS Head of GDP Rob Kent-Smith said.

Long term, the economy continues to slow, with growth compared with the same time last year at its lowest since the spring of 2012, Kent-Smith added.

Services output dropped unexpectedly by 0.3 percent in November, offsetting October's 0.3 percent increase. This was the biggest fall since 2018. Output was forecast to grow 0.1 percent.

In November, industrial production declined 1.2 percent month-on-month after easing 0.4 percent in October. Manufacturing logged a monthly fall of 1.7 percent due to large falls in car production as plants shut their operations ahead of October 31 Brexit deadline.

Industrial output was forecast to remain flat and manufacturing to fall 0.1 percent in November.

On a yearly basis, industrial production was down 1.6 percent in November, faster than the 0.6 percent decrease a month ago. Likewise, the decline in manufacturing output deepened to 2 percent from 0.3 percent.

Construction output increased 1.9 percent from the previous month in November, in contrast to a 2.2 percent decline in October. This was the fastest monthly growth since January 2019. On a yearly basis, construction output slid 2 percent.

Another report from the ONS showed that the visible trade deficit narrowed sharply to GBP 5.26 billion from GBP 10.94 billion in October.

Consequently, the total trade balance showed a surplus of GBP 4.03 billion versus GBP 1.33 billion deficit seen in October. The surplus was driven by a GBP 3 billion increase in exports of unspecified goods.

The economy is on course to stagnate or contract by 0.1 percent sequentially in the fourth quarter as a whole, Andrew Wishart at Capital Economics said. At the margin, that makes an interest rate cut a bit more likely, the economist added.

More Bank of England policymakers started to support a rate cut as the economy showed signs of weakness.

"Personally, I think it's been a close call, therefore it doesn't take much data to swing it one way or the other," Gertjan Vlieghe told the Financial Times in an interview published over the weekend.

"I really need to see an imminent and significant improvement in the UK data to justify waiting a little bit longer."

BoE's outgoing chief Mark Carney last week said the central bank has enough room to cut interest rates by a total 250 basis points as well as to increase the size of its asset purchases.

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