UK Economy Stagnates In January

Despite Boris Johnson’s election win, the UK economy stagnated in January as the expansion in the service sector was offset by falling industrial and construction output, data from the Office for National Statistics revealed Wednesday.

Gross domestic product remained flat on month in January after expanding 0.3 percent in December. Economists had forecast a monthly growth of 0.2 percent.

For third consecutive time, GDP was flat in three months to January from the previous three months. “Growth in construction, driven by housebuilding, offset yet another decline in manufacturing, particularly the drinks, cars and machinery industries,” ONS Head of GDP, Rob Kent-Smith said.

Ahead of the release from the ONS, the Bank of England unexpectedly cut its key interest rate and launched a new funding scheme for small businesses as it expects the UK economy to take a major hit due to the coronavirus, or Covid-19, outbreak.

Policymakers unanimously decided to cut the bank rate by 50 basis points to a record low 0.25 percent.

The BoE said activity is likely to weaken materially in the United Kingdom over the coming months.

The Chancellor of the Exchequer will present his Budget to Parliament later today. The new chancellor Rishi Sunak is likely to provide additional funds to the NHS and households amidst the spread of coronavirus. The Chancellor is widely expected to stick to the fiscal rules.

The ONS data showed that the growth in the dominant service sector slowed to 0.1 percent in January from 0.3 percent in December. The main drag on growth was information and communication.

Driven by weak energy output, industrial production fell unexpectedly by 0.1 percent, reversing a 0.1 percent growth a month ago. Output was forecast to grow 0.3 percent.

Manufacturing output expanded at a slower pace of 0.2 percent, in line with expectations, after December’s 0.3 percent increase.

At the same time, construction output plunged 0.8 percent in January, in contrast to a 0.4 percent rise in December.

On a yearly basis, industrial production fell 2.9 percent after easing 1.8 percent in December. Likewise, manufacturing slid 3.6 percent versus a 2.5 percent drop in December.

Economists had forecast industrial output to fall 2.6 percent and manufacturing to decline 3.5 percent.

Another data from ONS showed that the visible trade gap widened to GBP 3.72 billion from GBP 1.41 billion in December. Exports of goods fell 5.6 percent from December, while imports grew 0.7 percent.

Meanwhile, the surplus on services increased to GBP 7.93 billion from GBP 7.69 billion in the previous month.

Consequently, the overall trade balance showed a surplus of GBP 4.21 billion compared to GBP 6.27 billion in December.

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