U.K. Economy Returns to Growth in May as Car Production Gains

(Bloomberg) -- The U.K. economy rebounded in May as car factories resumed work following Brexit-related shutdowns.

GDP rose 0.3% after a decline in the previous month, the Office for National Statistics said Wednesday. The increase was in line with the forecast in a Bloomberg survey. In the three months through May, GDP rose 0.3%, more than expected, after past figures were revised up.

Powering the recovery was the manufacturing sector, as vehicle output returned to normal. Production collapsed the previous month after auto makers including BMW and Peugeot went ahead with shutdowns planned when Britain was set for a potentially chaotic departure from the European Union at the end of March.

Vehicle production surged 24% on the month, following a drop of the same magnitude in April. Both moves were the biggest since at least 1995. Manufacturing as a whole increased 1.4% and provided the biggest contribution to the overall expansion.

But the bounce back may not be enough to prevent the economy from shrinking in the second quarter. GDP will fall unless June output manages another small gain, the statistics office said.

But purchasing-manager surveys last week painted a dismal picture for June, with firms feeling the pressure from political uncertainty as the new Brexit deadline of Oct. 31 approaches.

While the economy is expected to return to growth in the third quarter, Bank of England Governor Mark Carney has recently taken note of the increased downside risks to the outlook amid global trade tensions and rising chances of a no-deal Brexit. The next policy decision is on Aug. 1.

Economic forecasts published by the European Commission Wednesday also highlighted the subdued second quarter. The EU’s executive arm predicts growth of 1.3% this year and next, although those projections are based on a technical assumption of no change to trading patterns with the bloc and thus do not take into account any disruption caused by Brexit.

Key Insights

• Manufacturing, which slumped 4.2% in April, rose 1.4% in May; vehicle production jumped but remains lower than levels seen at the start of the year
• Total industrial production also increased 1.4%
• Construction gained 0.6% m/m; services output was flat
• GDP rose 0.3% in the three months through May vs 0.4% in the period through April; gained 1.5% in May from a year earlier
• The goods trade deficit narrowed to 11.5 billion pounds in May as imports fell 0.6% and exports rose 3.5%.
• Deficit is on course to narrow in the second quarter after hitting highest-ever level in the first on stockpiling of foreign-made components and imports of non-monetary gold

--With assistance from Lucy Meakin.

To contact the reporters on this story: Andrew Atkinson in London at a.atkinson@bloomberg.net;David Goodman in London at dgoodman28@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Brian Swint

©2019 Bloomberg L.P.