Home news Factory output slip adds to rate hike doubts

Factory output slip adds to rate hike doubts


There are further signs economic growth is proving weaker than anticipated, especially in the sector that was tipped to help offset the slowdown in consumer spending.

Figures from the Office for National Statistics (ONS) covering trade, manufacturing and construction in May all came in below expectations.
The data prompted sterling to fall half-a-cent against the dollar as financial market participants took stock, calling into question whether growing talk of a Bank of England rate rise to counter rising inflation this year was premature.

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The ONS said manufacturing output fell 0.2% month-on-month. Analysts had expected an increase – bolstered by healthy export order growth because of the weakened pound since the Brexit vote.
The fall was driven by a drop in car production that had been previously flagged by the motor industry.
While construction output also fell, the ONS found the UK’s trade deficit with the rest of the world had widened to £11.9bn from £10.6bn the month before, despite a pick-up in export volumes.

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Closely watched surveys since May have suggested the weaker pound is proving more of a double-edged sword than hoped for ‘made in Britain’ – highlighting an impact from higher import costs in the production process.
Earlier this week, IHS Markit said it was clear the economy was “losing momentum” because of uncertainty caused by the Brexit negotiations and the General Election result.
Ahead of a meeting between business chiefs and Brexit Secretary David Davis on Friday, the Prime Minister told Sky News she wanted the UK to “continue to have tariff-free and as frictionless trade across borders as possible” after the looming divorce.

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Business leaders have become more vocal on their demands for the country to avoid a so-called ‘cliff edge’ in March 2019 – the CBI among groups seeking assurances firms will keep single market access until the conclusion of a new trade deal.
The step up in lobbying demonstrates the extent to which business groups feel emboldened since Theresa May lost her parliamentary majority, leaving them more able to fight their corner.
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The prospect of a loss of business confidence – and therefore a weaker economy – is not just a headache for Mrs May but Bank of England policymakers also.
A growing number have signalled their willingness to raise rates to counter the threat to the economy from rising inflation and soaring consumer borrowing – with even the governor Mark Carney seemingly warming to the idea in recent weeks.
The monetary policy committee has held off so far for fear of damaging economic growth.
Any loss of momentum could see support for a Bank rate rise drift away, especially if employment levels start to stutter.

Source: SKY