Car production fall hits UK industrial output

By Andy Verity
BBC economics correspondent

Image source, PA

UK industrial production shrank in the second quarter of the year, according to the latest official figures.

Production fell by 0.4%, mainly due to a 0.6% drop in manufacturing output, the Office for National Statistics (ONS) figures showed.

That was largely due to a 3.6% fall in the production of transport equipment, including motor vehicles.

Car production fell by 6.7% from May to June, the sharpest drop since December 2013.

Construction output also fell in the second quarter by 1.3%, with less work on new projects as well as repairs and maintenance.

The figures underline the British economy's dependence on services, which makes up about four-fifths of the UK's economic output.

There was some upbeat news towards the end of the quarter. In June, production output picked up, beating most economists' expectations, because oil producers had postponed seasonal maintenance work until later than normal.

And although the construction sector had the worst three months in five years, June saw a slight improvement, with just a 0.1% fall in output.

Separately, a report from the National Institute for Economic and Social Research (NIESR) said that UK economic growth in the three months to the end of July had slowed to 0.2%, compared with 0.3% growth in the second quarter of the year.

However, it predicted a "modest" recovery in the second half of the year as a result of improving global growth and the weaker pound.

Gloomy car numbers

The disappointing car production numbers in the ONS data chime with gloomy statistics from the Society of Motor Manufacturers and Traders last month, which showed in car production in June was down 13.7% from a year earlier.

The number of exported cars was also sharply down, disappointing hopes that the relatively weak pound would help UK car manufacturers offer competitive prices to foreign buyers.

That contributed to a weakening picture on trade overall. Between May and June the UK exported £4.6bn less in goods and services than it imported, the ONS said.

Over the second quarter of the year, the trade deficit widened slightly by £0.1bn to £8.9bn.

Howard Archer, chief economic adviser to the EY Item Club, said: "With sterling's deprecation and a healthy world economy supporting exporters, one would hope that the gap between the two will narrow in a favourable direction. That said, there was little sign of this in June's trade numbers.

"A fall in exports and rise in imports caused the monthly trade deficit to nearly double. And, a deficit of £8.9bn in Q2 suggests that net trade made no contribution to growth in the quarter. Evidence of rebalancing, at least in the 'hard' data, remains absent."

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