UK GDP Contracts On Car Production

The UK economy contracted for the second straight month in April on ‘dramatic’ fall in car production, data from the Office for National Statistics showed Monday.

Gross domestic product fell 0.4 percent on a monthly basis after easing 0.1 percent in March. This was the second consecutive decrease GDP was forecast to drop again by 0.1 percent.

In three months to April, GDP expanded at a slower pace of 0.3 percent after climbing 0.5 percent in the first quarter.

“GDP growth showed some weakening across the latest 3 months, with the economy shrinking in the month of April mainly due to a dramatic fall in car production, with uncertainty ahead of the UK’s original EU departure date leading to planned shutdowns,” Head of GDP at ONS, Rob Kent-Smith said.

There was also widespread weakness across manufacturing in April, as the boost from the early completion of orders ahead of the UK’s original EU departure date has faded, Kent-Smith added.

In April, industrial production declined for the first time this year on sharp fall in manufacturing. Production decreased 2.7 percent month-on-month, reversing a 0.7 percent rise in March and bigger than the expected 1 percent drop.

Due to weaker car production, manufacturing output contracted 3.9 percent on month, in contrast to a 0.9 percent rise in March. This was the biggest fall since June 2002 and larger than the forecast of 1.4 percent decrease.

The ONS said the most notable movement in April was the decline in production of transport equipment. Output has been weak since October 2018 and shrank 13.4 percent in April.

Car manufacturing declined 24 percent as firms planned shutdowns around the originally-intended departure date from the European Union.

According to Society of Motor Manufacturers and Traders, car production plunged 44.5 percent in April.

The deadline for the UK to leave the EU has been extended to October 31 from March 29, as the Theresa May government failed to secure lawmakers’ approval for a Brexit deal.

James Smith, an ING economist said the weakness in April should only prove temporary. Rising concerns about a possible ‘no deal’ Brexit, as well as the growing likelihood of a general election in the autumn, make it more likely that the central bank remains on hold through this year, the economist added.

On a yearly basis, industrial production fell 1 percent after expanding 1.3 percent a month ago, the ONS reported. Likewise, manufacturing slid 0.8 percent following a 2.6 percent rise in previous month.

Economists had forecast industrial output to grow 0.9 percent and manufacturing to climb 2 percent.

The index of services remained flat in April after dropping 0.1 percent in March. Economists had forecast a 0.1 percent rise.

Further, data showed that construction output declined 0.4 percent on month, following a steep 1.9 percent contraction in March.

Another report from ONS showed that the visible trade deficit narrowed to a six-month low in April. The trade gap fell to GBP 12.1 billion in April from GBP 15.4 billion in March.

At the same time, the trade in services showed a surplus of GBP 9.37 billion. Consequently, total trade deficit narrowed to GBP 2.74 billion from GBP 6.15 billion a month ago.

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