U.K. Manufacturing Jumps, Construction Falls as Quarter Starts

• U.K. Manufacturing Jumps, Construction Falls as Quarter Starts

The U.K. economy made a mixed start to the third quarter, output figures published Friday suggest.

Manufacturing rose in July for the first time this year, boosted by a strong rebound in car production, and the trade deficit was little changed from a downwardly revised June. But construction shrank for a fourth consecutive month after a plunge in new orders in the second quarter.

The figures, from the U.K. statistics office, may do little to dispel the picture of an economy stuck in the slow lane as Brexit uncertainty and the squeeze from rising prices take their toll. Growth in the first half was the weakest since 2012 and surveys suggest the dominant services industry is continuing to lose momentum.

Manufacturing rose 0.5 percent in July, more than the 0.3 percent economists predicted. Vehicle output, which had fallen sharply in recent months, surged almost 14 percent, the most since March 2009, helped by new models rolling off production lines. Total industrial production rose 0.2 percent, held back by a 1.4 percent drop in oil and gas production.

The deficit in goods and services was little changed at 2.9 billion pounds ($3.8 billion) as both exports and imports fell 0.2 percent. The shortfall for June was revised down sharply from 4.6 billion pounds, meaning the deficit in the second quarter was 7.7 billion pounds instead of the 8.9 billion pounds previously reported. It suggests net trade was less of a drag on the economy in the period than estimated in GDP data last month.

Import Surge

But while the weak pound has given a boost to exports over the past year, there is little sign that pricier foreign goods are leading consumers and companies to buy British-made products instead. Core import volumes rose an annual 7.2 percent in the latest three months, just behind 8.9 percent increase in exports.

The persistence of high deficits means trade is failing to aid growth, disappointing officials and analysts hoping for a re-balancing of the economy. The British Chambers of Commerce on Friday downgraded its GDP forecasts for 2018 and 2019, citing a weaker contribution from net trade and more subdued consumption.

Construction output fell a larger-than-expected 0.9 percent, with private housebuilding contracting following a strong couple of months.

The effect of Brexit on investment and consumer spending was underlined by separate figures showing new construction orders plunged by 7.8 percent in the second quarter. Housing fell 4.9 percent and other work declined 9 percent.