LONDON (Reuters) - British industry had its strongest month so far this year in September, but more signs of strain on consumers and a plunge in construction were reminders that the economy looks set for a difficult 2018 as Brexit approaches.
The figures published on Friday suggested manufacturing may help to counteract a consumer-led slowdown and offered some vindication to the Bank of England which last week raised interest rates for the first time in more than 10 years.
“Stronger global growth and the effect of the weaker pound seems to be finally showing through in the UK manufacturing numbers,” said ING economist James Smith.
The Office for National Statistics also announced a 1.6 percent monthly drop in construction, while separate figures published on Friday showed British shops suffered their worst October for sales in a decade.
“Given that manufacturing represents a relatively small share of the UK economy, the persistent weakness in consumer spending is a bigger consideration for the Bank of England,” Smith said.
Most economists polled by Reuters think Britain’s economy will slow next year, in large part due to uncertainty created by a lack of progress in talks on the terms of Britain’s divorce from the European Union.
But next week’s data on wage growth, inflation and retail sales will offer a more complete picture of an uneven economy around which finance minister Philip Hammond must engineer an annual budget, due on Nov. 22.
The ONS said Friday’s data backed up its preliminary estimate of growth of 0.4 percent in the third quarter, picking up a bit from earlier in 2017 but still slower than the rate in the euro zone.
Industrial and manufacturing output shot up by a monthly 0.7 percent in September, the fastest growth for each sector since December last year and above all forecasts in a Reuters poll of economists, which pointed to a reading of 0.3 percent for both.
Industrial output, which includes manufacturing, accounts for 14 percent of Britain’s economic output.
Figures for the much bigger services sector are due on Nov. 23.
For the third quarter as a whole, there was little change to estimates for industrial, manufacturing and construction output that appeared in the ONS’ preliminary economic growth estimate.
Until now, the official readings of manufacturing have tended to show a weaker picture for the sector than upbeat surveys over 2017.
Separately, the ONS said Britain’s goods trade deficit narrowed by much more than expected to 11.253 billion pounds in September from 12.350 billion, helped by a rise in exports. Economists polled by Reuters had expected 12.8 billion.
That was not enough to prevent a deterioration in Britain’s trade performance in the third quarter, however, which looks likely to be a sizeable drag on economic growth.
Samuel Tombs, an economist with Pantheon Macroeconomics, said the narrowing of the deficit in September almost entirely reflected an improvement in trade in erratic items.
Until now, there has been little sign of any big boost to British exports from the sharp fall in the value of the pound that followed last year’s Brexit vote.
Editing by Emelia Sithole-Matarise