Industrial output set to slow the economy

THE UK economy’s lacklustre start to the year is expected to continue as flagging industrial production and construction output drags on second-quarter growth.

Economists are expecting gross domestic product (GDP) to expand by 0.3% between April and June when official figures are released on Wednesday.

It would mark a slight improvement on first-quarter growth of 0.2% when the services sector stuttered as inflation dealt a blow to consumer spending.

The Office for National Statistics (ONS) revised down its initial estimate for the first three months of the year from 0.3% to 0.2%, indicating an even deeper slowdown compared to the 0.7% growth seen in the fourth quarter of last year.

Howard Archer, chief economic adviser to EY Item Club, is pencilling in 0.3% growth for the second quarter but said a rebound may not materialise.

He said: “It looks odds-on that whatever growth the UK managed to eke out in the second quarter will have been solely due to the services sector.

“This does appear to have seen some pick-up in activity after a particularly weak firstquarter performance.

“Industrial production and especially construction output both fell month on month in April and May, and were clearly on course for contraction over the second quarter.

“Despite decent overall manufacturing surveys for June, we suspect industrial production could have contracted by around 0.4% quarter on quarter in the second quarter, while construction output may have fallen by around 1.7% quarter on quarter.

“This will obviously have held back UK GDP growth in the second quarter, although it needs to be borne in mind that industrial production’s share of GDP is limited to 14.6% while construction only accounts for 5.9%.”

The second-quarter update comes after a series of downgrades from economists who are anticipating GDP to slow in the coming years as Britain embarks on its EU divorce.

Professional services firm PwC expects GDP to grow by 1.5% in 2017, revising down a previous estimate of 1.6% growth.

The influential EY Item Club has also nudged down its GDP outlook from 1.8% to 1.5% in 2017, saying the UK economy has deteriorated since April.