Sunday 25 August 2019

Industrial sector enjoys growth streak as construction industry enters recession

Figures from the Office for National Statistics showed industrial production unexpectedly grew by 0.7% month-on-month in September.

Car production figures
Car production figures

By Ben Woods, Press Association Chief City Correspondent

Britain’s industrial sector has enjoyed its strongest run for nearly 25 years, but the construction industry has slipped into recession as the UK economy fails to fire on all cylinders.

Figures from the Office for National Statistics (ONS) showed industrial production unexpectedly grew by 0.7% month-on-month in September, recording its sixth straight month of growth for the first time in 23 years.

While the trade gap also shrank by £700 million to £2.75 billion over the period, the UK construction industry endured a torrid time, falling by a deeper-than-expected 1.6% between August and September as new work sank by 1.3%.

Month-on-month change in UK industrial production since the EU referendum. Infographic from PA Graphics.

The picture also proved bleak for the third quarter, with construction output tumbling 0.9% and recording its first back-to-back quarterly fall for five years.

Chris Williamson, IHS Markit’s chief business economist, said the data points to a “multi-speed economy”.

He said: “According to data from the Office for National Statistics, both industrial production and manufacturing output surged 0.7% in September, notching up the best performance so far this year.

“It was a different story altogether for the building sector, with construction output down 1.6% in September. That leaves construction output down 0.9% in the third quarter following a 0.5% decline in the second quarter.

“The third quarter decline pushes the building sector into a technical recession for the first time since 2012.

“The overall picture is therefore one of the economy continuing to show relatively resilient growth, albeit with an undercurrent of heightened uncertainty surrounding Brexit posing downside risks to economic activity in coming months, especially business investment.”

Manufacturing output climbed 0.7% in September, driven by “robust growth” in cars and medical equipment, the ONS said.

Meanwhile, the UK trade deficit expanded by £3 billion to £9.5 billion for the three months to September, as imports of machinery and fuels helped offset a drop in aircraft imports.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The performance of UK trade since sterling’s huge depreciation remains abysmal.

“The narrowing of the deficit in September almost entirely reflected an improvement in trade in erratics, which will be fleeting.

“In Q3 as a whole, the volume of goods exports fell by 1.8% quarter-on-quarter, while imports increased by 1.9%.

“This suggests that net trade likely subtracted about 0.7 percentage points from quarter-on-quarter GDP growth in Q3.”

The figures come after previously released data showed the UK economy accelerated to 0.4% in the third quarter, with the lion’s share of the expansion coming from the services and manufacturing industries.

However, economic growth is still struggling to bounce back to levels seen in the final quarter of 2016 when GDP rose by 0.6%.

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