U.K. Industry May Drag on Growth After Unexpected Drop

  • Industrial production falls 0.3% from previous month
  • Steel manufacturing plunges 38% in February versus year ago

U.K. industrial production unexpectedly declined in February, suggesting that the sector may drag on growth for a second consecutive quarter.

The 0.3 percent drop followed a revised 0.2 percent increase in January, the Office for National Statistics said on Friday. Based on the current figures, output would need to surge 3.1 percent in March just to come in flat for the three months through March.

Manufacturing production also fell in February, dropping 1.1 percent. It was down 1.8 percent from a year earlier.

Weak trade and manufacturing numbers in recent years have raised concerns about the U.K.’s imbalanced economy. The future of British industry is now under a darker cloud after Tata Steel said it’s considering the sale of its unprofitable U.K. division, jeopardizing 40,000 jobs.

The ONS data showed that the manufacture of basic iron and steel fell an annual 38 percent in February. Production of crude steel is at its lowest level since 2008, according to the statistics office.

“The weakest points of the U.K. economy just got weaker,” adding to the “pile of evidence that the U.K. economy has slowed at the start of the year,” said Daniel Vernazza, an economist at UniCredit in London. “Heightened global uncertainty is likely to blame.”

While Britain’s economy has shown consistent growth in recent years, uncertainty surrounding the U.K.’s June referendum on EU membership is weighing on confidence. Markit Economics said Tuesday that its surveys indicate expansion slowed to 0.4 percent in the first quarter from 0.6 percent.

In a separate release, the ONS said that the goods-trade gap was at 12 billion pounds ($17 billion) in February. The total trade deficit, including services, was 4.8 billion pounds. Exports rose 0.9 percent on the month, while imports were little changed.

With the “Brexit” referendum just over two months away, campaigners are fighting over every detail of the U.K.’s economic relationship with the EU. Those who want to leave say the country should focus on new markets, while those in favor of remaining argue Britain can benefit from the bloc’s clout in global trade.

In the three months to February, the trade gap with EU countries widened to a record 23.8 billion pounds, the statistics office said, due to a 1.1 percent increase in imports and a 1.3 percent decrease in exports.

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