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Financial News: UK Economic Growth Set To Slow

UK Economic Growth Set To Slow

07/10/2019 - 10:18:00 (RTTNews)

(RTTNews) - UK gross domestic product grew in the month of May after a decline in April, but the pace of expansion is widely expected to slow in the coming months as the new Brexit deadline looms and the global economy cools. GDP rose 0.3 percent month-on-month in May following a 0.4 percent decline in April, figures from the Office for National Statistics showed on Wednesday. The expansion was in line with economists' expectations. In March, GDP edged up 0.1 percent. However, the rolling three-month growth slowed to 0.3 percent in the quarter to May from 0.4 percent in the three months to April. Economists had forecast 0.1 percent expansion. In the January to March period, the growth was 0.5 percent.

Elsewhere on Wednesday, the National Institute for Economic and Social Research predicted that the UK economy shrunk in the second quarter, but is set to grow in the three months to September, thus "narrowly" avoiding a recession. The think tank said the economy is on the course to contract 0.1 percent in the second quarter, but likely to expand 0.2 percent in the third quarter. The NIESR has forecast 1.4 percent growth for this year, but stressed that the risks were tilted to the downside because of economic and political uncertainties related to Brexit negotiations. "The latest ONS data and recent surveys suggest that the economy has lost considerable momentum since the first quarter," NIESR economist Janine Boshoff said.

"This reflects the impact of Brexit-related uncertainty and slower growth in the global economy outside of the United States."

The monthly growth in May was largely driven by a 1.4 percent expansion each in industrial production and manufacturing after declines in April, ONS data showed. Industrial production grew 1.4 percent monthly in May following a revised 2.9 percent slump in April, thus equaling the gain logged in March. Manufacturing grew 1.4 percent from April, when it plunged 4.2 percent. In March, output grew 1.6 percent. Economists had forecast 1.5 percent growth in industrial production and a 2.2 percent gain in manufacturing in May.

The latest rebound in manufacturing was driven largely by a pick-up in the production of transport equipment, after several car firms shut down production around the originally Brexit deadline of March 29, the ONS said.

The UK is now set to leave the European Union on October 31. "Attention within firms will be increasingly turning back to contingency planning for a possible 'no deal' Brexit in October, which is often a costly exercise and will inevitably draw some resources away from possible investment projects," ING economist James Smith said. "We expect investment to resume its downward trend over the summer."

Smith said the Bank of England is likely to keep its key interest rate unchanged this year as the economist does not expect any dramatic improvement in the growth story in the third quarter.

The index of services was unchanged from April, when it edged up 0.1 percent. Economists had expected the modest growth to continue. The construction output rose 0.6 percent in May after declines of 0.5 percent and 1.5 percent in April and March. Separate data from the ONS showed that the UK visible trade deficit narrowed to GBP 11.524 billion in May from GBP 12.761 billion in April. Economists had expected a shortfall of GBP 12.500 billion.

Exports grew 3.5 percent month-on-month, after a 9 percent slump in April. Imports decreased 0.6 percent following a 11.7 percent plunge in the previous month.

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