March 9, 2018 / 9:39 AM / a year ago

UK factories start 2018 in low gear, construction tumbles

LONDON (Reuters) - British industry kicked off 2018 in low gear and a downturn in construction deepened, according official data on Friday that suggested Britain’s economy remains on a slow path ahead of Brexit.

Britain went from being the fastest-growing Group of Seven economy to the weakest last year as the Brexit vote weighed on household spending and investment by companies.

Manufacturing output, which has been a bright spot thanks to the strong global economy, inched up only 0.1 percent month-on-month in January after a 0.3 percent rise in December, the Office for National Statistics said.

That was slightly weaker than the consensus in a Reuters poll of economists that pointed to 0.2 percent rise.

Nonetheless, January marked the ninth month in a row of manufacturing growth in monthly terms - the longest such run since records began 50 years ago.

But the overall picture was one of slowing momentum. Over the three months to January, manufacturing output rose 0.9 percent, the weakest pace since mid-2017.

“The impetus to growth from sterling’s 2016 depreciation is beginning to tail off,” economist Samuel Tombs from Pantheon Macroeconomics said.

British financial markets showed little reaction to the data.

Construction output plunged 3.4 percent month-on-month in January after a 1.6 rise in December, the biggest drop since June 2012 and worse than any forecast in the Reuters poll.

The slump was driven largely by a fall in housebuilding, a disappointment for finance minister Philip Hammond who is seeking to boost home construction - although growth was strong in late 2017.

Also the collapse of major construction firm Carillion in January likely hurt overall output, although an ONS spokesman said the agency could not comment on how individual firms affected the data.

Overall industrial output rose by a monthly 1.3 percent in January, reversing December’s 1.3 percent fall, as the Forties oil pipeline, Britain’s biggest, reopened after closing for repairs.

Economists taking part in a Reuters poll had expected to see output rebound 1.5 percent on the month.

Industrial output accounts for 14 percent of Britain’s overall economic output.

Britain’s economy grew at a quarterly rate of 0.4 percent in the three months to December 2017, slowing slightly from the third quarter.

Last month the Bank of England upgraded its growth forecasts for Britain on account of an improving global economy, and said interest rates are likely to rise faster and to a greater extent than it expected in late 2017.

Britain’s official budget forecasters are expected to follow suit and raise their growth forecasts too when they publish new projections on Tuesday.

Separate ONS data showed Britain’s goods trade deficit with the rest of the world widened slightly in January to 12.325 billion pounds ($17.01 billion), a touch bigger than expected in the Reuters poll.

The ONS said the deficit was pushed up by a large fall in fuel export volumes, possibly reflecting the Forties pipeline shutdown. The trade deficit in oil rose to its highest since September 2016.

FILE PHOTO: Factory worker Danny Bodie smoothes a curling stone in Kays Factory in Mauchline, Scotland, Britain, January 11, 2018. REUTERS/Russell Cheyne/File Photo

But even excluding oil and high-value items like aircraft and ships, the goods trade deficit struck its highest level since March 2017.

“While stronger global economic growth will continue to support demand for UK goods and services, the relative weakness of sterling remains more of a hindrance than a benefit,” British Chambers of Commerce head of economics Suren Thiru said.

Still, Britain’s total trade deficit for the fourth quarter was revised down to 7.8 billion pounds from 10.8 billion pounds, mostly due to higher than previously reported exports of services, underscoring the importance for Britain’s government to include the sector in a Brexit deal with the European Union.

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