Britain's industrial output shrank at the fastest rate in more than three years in the three months to February and the trade deficit ballooned to its widest in eight years, data showed on Friday, adding to worries of a broader economic slowdown. Finance minister George Osborne warned at the start of the year that the economy faced a "cocktail of risks" from spillover from a slowdown in China and a slump in commodity prices. There are also jitters at home in the run-up to the June 23 referendum on whether to leave the European Union.
Some of these dangers now appear to be materialising, with industrial output - which makes up 15 percent of Britain's economy - shrinking by 1.5 percent in the three months to February, its steepest decline since late 2012. "Today's release is disappointing and paints a dire picture of manufacturing in the UK," HSBC economist Simon Wells said. Sterling fell versus the dollar after the data and the EEF, a trade body for British manufacturers, said the latest data pointed to a "fairly dismal" first quarter.
The Office for National Statistics said factory output fell sharply on the month and the year, driven by lower production of cars, machinery, chemicals and clothes, and bucking Reuters poll forecasts for it to stay broadly stable. Steel production, in the headlines after India's Tata Steel put Britain's biggest steelworks up for sale, sank to its lowest in more than seven years.
Over the same three months, the country's trade deficit in goods and services reached its widest since March 2008, when trade tumbled due to the global financial crisis. The goods trade deficit with the EU was the highest since records began in 1998, and the overall goods deficit exceeded all economists' forecasts in a Reuters poll after a sharp upward revision to January data.
GLOBAL WEAKNESS Friday's data continues a pattern that suggests Britain's economy slowed at the start of the year. Markit's purchasing managers' indices, which had already pointed to a big slowdown in manufacturing, suggest that once the much larger services sector is taken into account, economic growth slowed to 0.4 percent in the first quarter of 2016. Weakness is due to a mix of domestic and global factors. International Monetary Fund chief Christine Lagarde said on Tuesday that the global economy's modest prospects would decline further unless countries took more steps to boost growth.
China's shift to an economic model based more on domestic demand, stubbornly low commodity prices and tighter funding conditions in some countries had all clouded the outlook, she said. Recent surveys have suggested British firms are putting investment plans on hold until after June's referendum. A partial recovery in oil prices and a weakening in sterling in the past couple of months have not yet materially boosted prospects for exporters or North Sea oil producers.
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