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UK Factories on Best Run Since 1997 Amid Global Upswing

Jan. 10, 2018
Manufacturing accounts for 14% of the economy.

U.K. manufacturers posted a seventh consecutive month of expansion in November as sectors from food producers to makers of games and sports equipment increased output.

Factory output rose 0.4% from October, the Office for National Statistics said on Jan. 10, while overall industrial production also increased 0.4%, with a drop in temperatures boosting demand for energy. That means the sector, which accounts for 14% of the economy, almost certainly contributed to growth in the final quarter of 2017.

Stronger manufacturing was one of the factors cited by the National Institute of Economic and Social Research as it upped its fourth-quarter growth estimate to 0.6% in a report on Jan. 10. That would be the fastest rate in a year.

Factories are enjoying the longest run of uninterrupted growth since 1997 thanks to a broad-based global upswing, particularly in the euro area, which buys almost half of British exports.

Ten out of 13 manufacturing sectors posted increases in November. A weak spot was car production, which plunged by 7.1% -- the biggest decline since 2014 -- after strong foreign demand in recent months.

Separate figures show construction output climbed 0.4% in November, and the trade deficit widened to 2.8 billion pounds.

Construction Woes

The construction sector appears on course to shrink for a third straight quarter after a 1.1% decline in October, leaving industry executives pinning their hopes on budget initiatives announced by Chancellor of the Exchequer Philip Hammond to boost home building and get young people onto the property ladder.

The economy’s performance in 2018 will depend on the dominant services industry, which has come under pressure from inflation-squeezed consumers. Britain is forecast to join Italy and Japan at the bottom of the Group of Seven growth league this year, with an expansion of just 1.4%, Bloomberg surveys show.

The trade figures show exports of goods and services rose by 0.6% and imports gained 1.6%. While export volumes have far outstripped imports over the past year, higher import prices caused by the pound’s past depreciation are making it hard to reduce the deficit.

The goods shortfall excluding oil and erratic items stood at 32.7 billion pounds in the three months through November, just 1.5 billion pounds lower than a year earlier.

Net trade contributed nothing to GDP growth in the third quarter, and may fail to do so again in the fourth. The total deficit will widen unless December sees the shortfall narrow sharply to 763 million pounds.

By Lucy Meakin

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