Sunday 25 August 2019

Car manufacturing slump puts brakes on UK economic growth

April figures showed a decline in the production sector.

Transport manufacturing slumped as several plants closed (Anna Gowthorpe/PA)
Transport manufacturing slumped as several plants closed (Anna Gowthorpe/PA)

By Alys Key, Press Association City Reporter

Growth in the British economy slowed in the three months to April, as a drop in car production following the original Brexit deadline hit output.

Gross domestic product (GDP) was up by 0.3% in the three months to April, according to the Office for National Statistics (ONS).

This marked a slowdown on the rolling three-month level for January to March, when growth was at 0.5% thanks to the highest quarterly pick-up in manufacturing since the 1980s.

The pound weakened against the US dollar following the disappointing figures, dropping 0.4% to 1.268.

On a month-to-month basis, GDP contracted by 0.4% in April, faster than the 0.1% decline expected by economists.

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(PA Graphics)

This was due to a drop in car manufacturing after several automobile plants went ahead with planned shutdowns, which had originally been scheduled to coincide with the immediate aftermath of Brexit.

Although the production sector increased by 0.7% in the three months to April, monthly growth slumped by 2.7%.

Transport equipment was the biggest drag, contracting by 13.4% in April.

Motor vehicle production specifically saw a significant decline of 24%.

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(PA Graphics)

Rob Kent-Smith, the ONS’s head of GDP, said: “GDP growth showed some weakening across the latest three months, with the economy shrinking in the month of April mainly due to a dramatic fall in car production, with uncertainty ahead of the UK’s original EU departure date leading to planned shutdowns.

“There was also widespread weakness across manufacturing in April, as the boost from the early completion of orders ahead of the UK’s original EU departure date has faded.”

Meanwhile, the services sector recorded its lowest three-month growth since this time last year, climbing just 0.2%.

Construction was up 0.4% in the same period, boosted by strong growth in infrastructure.

Howard Archer, chief economic adviser at EY Item Club, said the latest figures indicated that the economy is heading for a weak second quarter.

“We had been expecting GDP growth to be no more than 0.2% quarter on quarter in the second quarter but even this muted performance is now looking somewhat optimistic – as it is hampered by some unwinding of the major stockbuilding that occurred in the first quarter amid concerns of a disruptive Brexit occurring at the end of March,” he said.

“Prolonged Brexit uncertainties, a fraught UK political situation and a challenging global economic environment are also weighing on economic activity in the second quarter.”

However Samuel Tombs, chief UK economist at Pantheon Macroeconomics said that although the second quarter is set to be “awful”, the economy could recover later in the year.

“We’re reluctant to conclude, however, that the economy has fundamentally lost momentum, given the still-bright outlook for households’ real incomes,” he said.

“Note too that three-month on three-month growth in services output has slowed to its current 0.2% rate on two other occasions since the EU referendum in 2016, before swiftly rebounding.”

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