Short-term economic indicators commentary: March 2018

Commenting on today’s short-term economic indicator figures, Office for National Statistics (ONS) senior statistician Ole Black said:

"Manufacturing has recorded its ninth consecutive month of growth but with a slower start to 2018. Total production output continues to advance, bolstered in January 2018 by the Forties oil pipeline coming back on stream after December's shutdown.

“Construction continues to be a weak spot in the UK economy with a big drop in commercial developments, along with a slowdown in house building after its very strong end to last year.

“The total trade deficit widened again as rising oil prices made for dearer fuel imports.”

This section presents the latest figures and trends for the UK’s short-term economic indicators.

Production

• Growth in total production output continued to slow in the three months to January 2018, increasing by 0.2% – the weakest three-month on three-month growth since June 2017 (Figure 2).

• The largest negative contribution came from mining and quarrying, which rebounded in January 2018 following a sharp fall in December 2017 due to the unexpected shutdown of the Forties pipeline system.

• Following the 19.1% fall in the output of mining and quarrying in December 2017, it increased by 23.5% in January 2018 to recover to levels seen prior to the December shutdown (Figure 3); such an immediate recovery was not seen following previous significant shutdowns in both September 2012 and October 2016, which were due to maintenance occurring outside of the usual periods.

• While manufacturing recorded its seventh consecutive three-month on three-month growth in January 2018 – the first time since June 2014 – growth slowed to 0.9%, from 1.3% in the three months to December 2017 (Figure 2).

• The three-month on three-month growth in manufacturing was driven by basic metals and metal products, which accounted for over half of the total 0.9% growth in manufacturing output.

• Manufacturing output increased for the ninth consecutive month in January 2018, growing by 0.1%.

• The monthly growth of 0.1% for manufacturing output and 1.3% for production output were both weaker than market expectations of 0.2% and 1.5% respectively.

Construction

• Construction output continued to weaken in the three months to January 2018, with total construction output falling by 1.0%, marking the ninth consecutive fall in three-monthly output growth.

• This was driven by a 4.1% decrease in private commercial new work and a 2.1% decrease in total repair and maintenance – subtracting 0.8 and 0.7 percentage points respectively from total growth in construction output.

• Monthly construction output fell by 3.4% in January 2018 – the largest monthly fall since June 2012 and weaker than market expectations of a 0.5% fall; this was due mainly to a 8.3% fall in private new housing, following a historically high level of output in December 2017.

• While today’s release of construction new orders for Quarter 4 (Oct to Dec) 2017 shows a sharp decrease of 25.0%, this follows a 38.1% increase in Quarter 3 (July to Sept) 2017 due to the High Speed 2 (HS2) project; compared with Quarter 2 (Apr to June) 2017, new orders increased by 3.6% in Quarter 4 2017.

Trade

• The UK trade deficit widened by £3.4 billion to £8.7 billion in the three months to January 2018; excluding erratics, the trade deficit widened by £2.6 billion to £8.9 billion.

• This primarily reflected a £3.2 billion widening in the goods deficit, driven by a £1.5 billion increase in the import of oil.

• Today’s latest trade figures incorporate revisions to the UK trade deficit throughout 2017, with a narrower deficit than previously estimated in Quarter 3 and Quarter 4 2017 (a revision of £2.0 billion and £3.0 billion respectively) (Figure 4); the revision in Quarter 4 2017 was driven by downward revisions to goods imports, particularly unspecified goods, and upward revisions to services exports.

• In volume terms, both goods exports and imports excluding oil and erratics increased in the three months to January 2018 by 0.2% and 0.5% respectively; growth in exports has been relatively subdued in recent months following a period of strong growth since mid-2016 (Figure 5).

• There have been revisions to the volume of total goods exports in 2017, with Quarter 3 growth revised up from 0% to 1.2% and Quarter 4 revised down from a fall of 0.7% to a fall of 3.2%; Quarter 4 growth in imports has also been revised down from a rise of 1.7% to a fall of 0.5%.

• The sterling exchange rate index appreciated by 2.1% in the three months to January 2018, coinciding with a 0.9% increase in goods export prices and a 1.1% increase in goods import prices; however, removing the effect of price movements in oil, export and import prices of goods both fell by 0.3%.

• The UK trade deficit widened by £0.6 billion to £3.1 billion in January 2018; this is compared with a market expectation of a narrowing of £1.6 billion.