Data adds to growth slowdown fears


Published: Friday 10th April 2015 by The News Editor

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A sharp fall in oil and gas production in February coupled with another grim month for the UK construction industry today added to fears of a growth slowdown in the first quarter.

Some economists now think official gross domestic product (GDP) figures published a week before the General Election will show the pace of Britain’s expansion weakening.

The new figures were also seen as boosting the likelihood of interest rates remaining lower for longer and even adding to suggestions that they could be cut further.

The pound fell to near 1.46 against the US dollar, its lowest level since June 2010 – shortly after the last General Election.

Today’s data showed industrial production growing by just 0.1% in February after shrinking by 0.1% in the previous month. Construction shrank by 0.9% following a 2.5% contraction in January.

It was suggested that the figures pointed to overall growth slowing to 0.4% for the first quarter, down from 0.6% in the last three months of 2014. That would be the weakest pace of growth since the end of 2013.

Alan Clarke, head of European fixed income strategy at Scotiabank, said: “Unless we get big revisions to these data, or a massive jump in services output in February and March, then GDP growth of just 0.4% is looking the most likely outcome.

“This is not going to make pleasant reading for the coalition Government in the final days of the election campaign.”

Recent GDP figures provided a boost to the coalition when they showed the economy grew by 2.8% over 2014.

But official data from January had been disappointing including trade figures this week showing goods exports falling to their lowest level since September 2010 and the overall deficit widening.

Today’s figures for February showed that, within production, manufacturing had a better month as it returned to growth with expansion of 0.4%. But revised figures for January showed its decline in that month was worse than expected, at 0.6%.

The wider production sector was dragged down by oil and natural gas, which fell by 3.8% month-on-month, as the lower oil price appeared to take its toll.

Meanwhile, the construction sector’s decline continued as private sector new housing work declined for the fifth month in succession. Construction has also been weakening over the longer term, down 1.3% compared with February last year.

Chris Williamson, chief economist at Markit, said: “Weaker than expected construction sector and industrial production numbers point to the economy having slowed at the start of the year.

“The data provide further evidence to support the case of interest rates to remain on hold, and will add to chatter that policy may even need to be loosened further.

“Clearly this all bodes ill for economic growth in the opening quarter of the year. It’s now looking like the economy slowed, and possibly quite markedly, compared to the 0.6% expansion seen in the closing quarter of 2014.”

Howard Archer, of IHS Global Insight, said it would be “very unwelcome” for the Tories and Liberal Democrats “given their hopes that many undecided voters will ultimately decide to reward them for the economy’s improvement”.

Samuel Tombs, of consultancy Capital Economics, said: “Although manufacturing output rose by a healthy 0.4%, the lower oil price appears to be taking a swift toll on oil and gas extraction, which fell by nearly 4%.

“Nonetheless, we doubt that today’s weak production figures signal that the economic recovery is beginning to hit the buffers.

“The initial official estimates are often revised and recent amendments have more often been up than down.

“Meanwhile, the stimulus provided to the non-oil sector from lower crude prices, cheaper credit and somewhat stronger demand in the euro-zone all suggest that the recovery is poised to gain rather than lose pace this year.”

Published: Friday 10th April 2015 by The News Editor

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