Weaker data reports take shine off UK’s recovery

People practice martial art in the grounds of a municipal park close to the Canary Wharf business and shopping district in London. UK industrial and manufacturing production unexpectedly stagnated in November and construction fell the most in more than a year, indicating the economy may have struggled to build momentum in the fourth quarter.

Reuters/London

Britain’s economic recovery got a “reality check” yesterday when data showed weaker-than-expected manufacturing output, a sharp fall in the construction sector, and a slowdown in retail sales growth.

Economists said growth in the fourth quarter might now struggle to keep up the pace which has made Britain one of the fastest-growing economies among the world’s rich nations.

Official data was not seen matching up with strong industry surveys.

Output for both manufacturing and industrial production was flat month-on-month in November, and October’s increases were revised down, the Office for National Statistics said.

Economists in a Reuters poll had expected increases of 0.4% for manufacturing and industrial output in November.

The data was “something of a reality check for those getting a little carried away by the strength of the UK recovery,” said James Ashley, senior economist with RBC Capital Markets.

HSBC’s Simon Wells said yesterday’s data could reduce growth in the fourth quarter to 0.6% from 0.8% in the July-September period, unless there is a very strong performance from the dominant services sector.

Bad weather in December could also weigh on gross domestic product, he said.

Sterling fell and 10-year British government bond yields touched their lowest level since December 19.

The ONS also said output in Britain’s construction sector shrank by 4% in November from October, its sharpest fall since June 2012 and a setback for a sector which has been recovering from a long slump.

“The recovery in the UK remains broadly on track — but today’s data are a reminder that we have not yet reached the sunlit uplands that would pave the way towards thoughts of policy tightening,” RBC’s Ashley told clients.

The Bank of England has forecast economic growth of 0.9% in the October-December period and yesterday’s data could help underscore its message that it is in no rush to raise record-low interest rates.

“Talk of the UK being the first developed country to hike rates looks rather misplaced,” said Marc Ostwald, a fixed income strategist at Monument Securities.

Adding to the sense of a recovery struggling to stay in high gear, a separate survey showed British retail sales growth slowed in December.

A first estimate of Britain’s economic growth in the fourth quarter is due to be announced on January 28.

Britain staged a surprisingly strong recovery in 2013 after struggling to get over the financial crisis. But the economic turnaround has depended largely on spending by consumers, many of whom have been buoyed by a recovery in the housing market while earnings fail to keep up with inflation.

A survey published yesterday by the British Retail Consortium showed that sales in the busy shopping month of December were 1.8% higher on the year compared with a 2.3% increase in November.

“While confidence levels were higher than the previous year, this wasn’t always matched by more money in pockets,” BRC director-general Helen Dickinson said.

The outlook for Britain still contrasts starkly with grim forecasts of a return to recession at the start of last year.

The economy is expected to expand by 2.8% this year, according to the BoE. There have been some early signs of a long-awaited shift towards more sustainable growth based on exports and business investment.

Data on Thursday showed that while the country’s trade deficit remains wide, goods exports rose to several other European countries, many of which are only starting to emerge from the region’s debt crisis.

However, British manufacturing remains 8.5% smaller than its peak in 2008, before the financial crisis.

Weighing on overall industrial production in November was a 3% fall in oil and gas extraction compared with October, largely caused by reduced output at Total’s St Fergus onshore North Sea gas terminal, ONS officials said.