George Osborne faces GDP downturn despite manufacturing bounce

'The economy grew by 0.3 per cent in the quarter to February'

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The Independent Online

UK growth slipped in the quarter to February but the economy could be over the worst of its recent blip, a leading forecaster said yesterday. 

The National Institute for Economic and Social Research (NIESR) said the UK economy expanded at a pace of just 0.3 per cent over the period – well below the 0.5 per cent pace suggested by official figures for the final quarter of last year. But NIESR added the figures had been dragged down by a particularly weak December and suggested growth had accelerated at a slightly faster pace of 0.4 per cent since the turn of the year.

Research fellow Jack Meaning said: “It looks as if output growth at the start of 2016 has been subdued. However … December 2015 may have been a low point for GDP and as this drops out of the calculation of quarterly growth rates, output growth for the first quarter may strengthen slightly.”

But Chancellor George Osborne will still face downgraded growth forecasts from the Office for Budget Responsibility in next week’s Budget. The watchdog pencilled in growth of 2.4 per cent for 2015 in November, but the latest Office for National Statistics estimates suggest a 2.2 per cent expansion.

Manufacturers supplied a welcome surprise, however, as the sector – accounting for around 10 per cent of the economy – expanded output by 0.7 per cent over the month. The pace of expansion was three times as quick as economists’ forecasts and marked the first growth since September.

The biggest contributor was “other manufacturing and repair” – a broad category including makers of furniture, jewellery, musical instruments, games and toys.

Overall industrial production grew at a much slower pace at 0.3 per cent, as the biggest fall in oil and gas extraction for 18 months put the handbrakes on the manufacturing surge. 

Scott Bowman, UK economist at Capital Economics, said: “While 2016 started slightly better, near term prospects don’t look great with the manufacturing sector dealing with subdued global growth and North Sea production hit by low oil prices.” 

Growth is being almost exclusively driven by services, as manufacturing output remains more than 6 per cent below its 2008 peak. Accountants PwC suggested the number of jobs in manufacturing could fall by a further 600,000 to around 2 million by 2025, thanks to automation and overseas competition.

The monthly Markit/Cips survey of British manufacturers also showed the sector enjoyed an unexpectedly strong January, but it then suggested factory activity barely grew last month.

Britain has been one of the fastest-growing major advanced economies for the past couple of years. But it has relied heavily on domestically focused services for growth, frustrating hopes of a better balanced recovery.