A disappointing third quarter for UK manufacturers

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The UK economy cooled somewhat in the third quarter but growth remained firm, while manufacturing stayed in recession.

UK real GDP growth eased to 0.5% in quarter-ago terms in the three months to September, according to the preliminary estimate. The main driver of the weaker headline GDP was a sharp fall in construction. Similarly, manufacturing declined for the third consecutive quarter but the 0.3% fall was smaller than that in the previous period. In contrast, services rose modestly.

UKGDPQ32015 

The weakness of manufacturing was broad-based. The largest decline was in basic metals, which was no surprise because UK steel makers are struggling amid an oversupply flowing from weaker global demand. Likewise, mechanical equipment declined sharply, thanks to the lingering negative impact of the collapse in crude oil prices on investment in the oil and gas supply chain.

Yet the news wasn’t wholly negative. Motor vehicle manufacturing rose for the fourth consecutive quarter, and the increase was larger than in the previous period, suggesting that the demand of UK consumers and emerging markets has not fallen off a cliff. Similarly, transport equipment did well, thanks to a backlog of aircraft orders.

The conditions facing manufacturers will continue to be challenging into 2016 as oil prices are still low and exports remain under pressure from slower growth in emerging markets, the euro zone’s subdued recovery, and the pound remaining relatively strong.

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