Recession fears stoked as UK manufacturing plunges

Edmund Heaphy
·Finance and news reporter
Updated
Robots ready to produce the new Mini Cooper are pictured during a tour of the BMW's plant at Cowley in Oxford, central England, on November 18, 2013. Car giant BMW, which has been manufacturing the Mini since 2001, has finally taken the wraps off the new Mini that will be available in the UK in Spring 2014. AFP PHOTO/ANDREW COWIE (Photo credit should read ANDREW COWIE/AFP/Getty Images)
Robots preparing to make Mini cars at BMW's factory in Oxford. Photo: Andrew Cowie/AFP/Getty Images

UK economic growth came in weaker than expected in August and the country’s manufacturing sector saw a dramatic plunge in output during the same month — two data points that will stoke fears of a recession.

Economic activity declined by 0.1% in August compared to July, meaning that the economy contracted on a monthly basis for the first time since April. Manufacturing saw a surprise 0.7% decline, way below the 0.1% growth analysts had expected.

Compared with the same month last year, manufacturing plunged by 1.7%, even though car plants were expected to boost output after moving forward their usual summer shutdowns to April to coincide with the original Brexit deadline.

READ MORE: Brexit gridlock blamed for huge plunge in homes going up for sale

Gross domestic product (GDP) growth in the three months to the end of August was stronger than expected, however. The Office for National Statistics (ONS) revised upwards its figure for the month of July, from 0.3% to 0.4%.

Growth in June was increased from nothing to 0.1%, meaning that, in spite of the decline in August, the economy expanded by 0.3% over the three months.

“Growth increased in the latest three months, despite a weak performance across manufacturing, with TV and film production helping to boost the services sector,” said Rob Kent-Smith, the head of GDP at the ONS.

Upward momentum in the professional, scientific, and technical sector was responsible for strong 0.4% growth in the services sector, the ONS said.

The strong growth in June and July suggest the UK “is on course to dodge the recessionary bullet” in the third quarter, said Samuel Fuller, the director of Financial Markets Online.

“Britain’s economy now looks set to post some growth in the third quarter,” Fuller said. Other analysts were less optimistic.

“While it may not make the same headlines as the GDP read, the latest manufacturing and industrial production reads perhaps offer greater insight into the health of the UK economy here, with sharp contractions seen in each coming as another warning sign,” said David Cheetham, the chief market analyst at online trading firm XTB.

READ MORE: Philip Hammond accuses Boris Johnson of being 'reckless about our economic future'

Cheetham, noted, however, that economic data was “of secondary importance” to Brexit uncertainty when it came to the concerns of markets.

“The 0.1% contraction follows a solid July growth figure,” said James Smith, a developed markets economist at financial services firm ING.

“But even so, there's very little to cheer about in the UK economy at the moment,” Smith said.

Fears of a recession in the UK had receded last month, when data showed that all sectors of the economy registered growth in July, the first month of the third quarter.

But a 0.2% decline in economic output in the three months to the end of June fanned worries that the UK was on the cusp of a recession — which is defined as two consecutive quarters of falling GDP.