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GLOBAL ROUNDUP: British Industrial Output on Course for Positive Q2

Manufacturing contracts 0.5% in the U.K. in May, a little less than expected and a good early sign that the second quarter will remain on course after the Brexit vote. ... German industrial output, meanwhile, drops unexpectedly.

U.K. industrial producers are on course to post their first positive quarter in almost a year after they cut output by less than economists forecast in May.

Output at factories, utilities and mines fell 0.5% following an upwardly revised 2.1% surge in April, the Office for National Statistics said Thursday. Economists in a Bloomberg survey had predicted a 1% drop. Manufacturing contracted by 0.5%, also less than expected.

Industrial production is almost certain to contribute to economic growth in the second quarter for the first time since summer 2015. Output will expand if June sees a decline of less than 6%, a drop not seen since 1979. But the British economy is only starting to feel the impact of last month’s shocking Brexit vote to leave the European Union, which is casting doubt on prospects for the rest of the year.

Some surveys suggest uncertainty was hampering the economy even before the referendum and a report published Thursday showed business confidence falling to a 4½-low in the aftermath of the vote. Bank of England governor Mark Carney has warned of a “material slowing” and signaled that interest rates could be cut within months.

Seven of 13 manufacturing sectors saw output fall on the month, with the largest contribution coming from pharmaceuticals, which declined 6.5% following a surge in April. There were also falls in textiles and leather products and machinery and equipment.

Energy production fell 2.9% as warm weather hit demand. Oil and gas extraction declined 0.2%. Industrial production rose 1.4% from a year earlier and was up 1.9% in the latest three months compared with the equivalent period through February.

Output may rise as much as 2% in the second quarter, more than reversing the 0.2% decline seen between January and March, according to Alan Clarke, an economist at Scotiabank in London.

One bright spot for manufacturers is the sharp drop in sterling since the referendum, which may help exporters, although it also pushes up the cost of imported materials. The pound has tumbled 13% against the dollar since June 23 to a three-decade low. It was at $1.2992 at 9:53 a.m. London time, up 0.5% on the day.

German Output Unexpectedly Drops in Sign of Slowdown

German industrial production dropped the most in 21 months in May in a sign that the headwinds from a global economic slowdown and political uncertainty in Europe damped activity.

Production, adjusted for seasonal swings, fell 1.3% from the previous month, when it rose a revised 0.5%, data from the Economy Ministry in Berlin showed on Thursday. Economists in a Bloomberg survey had predicted a 0.1% rise in the typically volatile gauge. Output fell 0.4% from a year earlier.

The report underscores the challenges facing German manufacturers, with signs of fragility in the global economy now likely to be exacerbated by the U.K.’s decision to quit the European Union. The British vote in June could further weaken the German economy, Bundesbank President Jens Weidmann warned last week.

The decline was led by investment goods, which dropped 3.9%, while consumer goods gained 0.5%. Construction fell 0.9% from April and intermediate goods declined 0.3%, the ministry report showed. Output of manufacturing fell 1.8%, while energy gained 3.9%.

By Lucy Meakin, Carolynn Look and Piotr Skolimowski, with assistance from Mark Evans, Andre Tartar and Kristian Siedenburg.

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