Gloomy UK manufacturing and construction figures add to economic doubts

Sluggish factory output and a continuing contraction in the construction industry added to doubts about the economy as the Bank of England prepared to release its latest decision on interest rates later on Thursday.

Manufacturing output fell for the second month running in March meaning first-quarter growth slowed to 0.2% from 1.3% in the final quarter of 2017, the Office for National Statistics said.

The ONS said manufacturing growth weakened because of a reduction in both export and domestic turnover, suggesting the slowdown was not a weather-related blip. Manufacturing helped keep the economy growing in 2017 as the weaker pound and the booming global activity combined to support demand for UK products.

Rob Kent-Smith, the ONS’s head of national accounts, said: “Today’s figures support previous estimates showing the economy was very sluggish in the first quarter with little impact overall from the bad weather.

“Manufacturing was broadly flat throughout the first quarter following several months of strong growth, with no evidence that the bad weather hampered UK factories. The whole construction sector performed poorly in the first quarter.”

Construction output fell 2.3% in March and 2.7% in the first quarter – the biggest contraction since August 2012. Residential housing activity, previously a bright spot for a sector in recession, registered a quarter-on-quarter fall of 1.6%.

The figures underlined suspicions that the economy’s underlying growth could be slowing sharply after GDP growth ground to a halt in the first quarter. Economic indicators have been skewed by the extreme weather that hit the country in March but the ONS has said the net effect was minimal.

Economists had expected the Bank of England to increase interest rates at 12:00 BST on 10 May but the series of gloomy figures has shifted the debate to whether the BoE will raise rates in August or hold off for longer.

Ruth Gregory, an economist at Capital Economics, said the figures were a dismal end to the first quarter.

“Today’s activity figures did little to support suspicions that the overall economy grew a bit more quickly than the Q1 GDP figures suggest,” Gregory said. “Against this background, it is hard to see the MPC hiking interest rates this afternoon. However, we still think that improving data in the coming months will allow the committee to raise rates again in August.”