Monday 21 January 2019

Mixed fortunes for UK economy as Brexit countdown continues

David Milliken and William Schomberg

The UK economy has stayed on its steady but slow course at the start of 2018, just over a year before the country is due to leave the European Union, as growth across factories cooled to an eight-month low and lending to consumers slowed.

One gauge of factory activity, the IHS Markit/CIPS manufacturing purchasing managers' index (PMI), inched down to 55.2 in February from 55.3 in January - its second-lowest reading since June 2016's Brexit vote, though a shade above the average forecast of 55.0 in a Reuters poll.

A reading below 50 would mean output had declined.

Manufacturing was a relative bright spot for Britain's economy late last year, when year-on-year growth for the economy as a whole was the weakest among the G7 group of rich nations, partly due to weaker consumer demand caused by higher inflation after June 2016's Brexit vote.

Separate figures from the Bank of England yesterday showed annual growth in unsecured consumer lending fell to 9.3pc in January from December's 9.5pc, despite the biggest monthly increase in net credit card lending since January 2005.

However, the number of mortgages approved by lenders rose to a six-month high after its biggest monthly jump in nearly three years, suggesting the housing market perked up slightly.

The PMI suggested factory output growth so far this year has slowed to a three-monthly rate of 0.4pc compared with a robust 1.3pc in the last three months of 2017, IHS Markit said.

"Growth in the manufacturing sector is moderating, now that the recovery in the eurozone has started to lose a little pace and more than 18 months have elapsed since sterling's huge depreciation," Pantheon Macroeconomics economist Samuel Tombs said.

February's growth slowdown was broad, affecting firms producing consumer, investment and intermediate goods, at a time when manufacturers in most of Europe are enjoying a strong upswing from a recovery in global demand, the survey showed.

The exact trigger for the past month's slowdown, just over a year before Britain leaves the EU in March 2019, was unclear, and IHS Markit said there were some brighter signs for the future.

Factory order growth was the strongest since November, and 56pc of manufacturers expect to raise production over the coming year - close to January's two-year high - versus 6pc who forecast a decline.

Manufacturers' raw material costs rose at a slower rate than January's 11-month high, and the pace at which firms passed higher costs on to their customers also slowed.

Consumer price inflation hit its highest in over five years in November at 3.1pc, and earlier this month the Bank of England said it would probably have to raise interest rates slightly more than it had planned.

Earlier on Thursday, mortgage lender Nationwide said the path for BoE rates would be a key factor for house prices in 2018. They recorded their first monthly fall in six months, pushing the annual growth rate to a six-month low of 2.2pc. But the BoE said the number of mortgages approved for house purchase rose to 67,478 in January from a one-year low of 61,692 in December.

It was the sharpest monthly rise since April 2015 and far above economists' average forecast of 62,000 in a Reuters poll. (Reuters)

Irish Independent

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