UK Industrial Production figures drop in August, pushing GDP to fall by 0.1%.
Brexit uncertainty and global economic slowdown impact UK economy
- UK gross domestic product (GDP) fell by 0.1% in August.
- Despite weak production figures, services saw an increase with TV and film production being the largest positive contributor for the sector.
- Investors should remain cautious about their exposure to the UK.
The latest release of UK economic data from the ONS makes it apparent political uncertainty now weighs heavily on the British economy. Year-on-year Industrial Production figures in August fell below the consensus of -0.85%, down to -1.8%, with figures confirming the ongoing weakness in this segment of the economy. Manufacturing production, which makes up around 80% of overall industrial production, also fell short of the market consensus of -0.55 in August, down to -1.7% on an annual basis.
The UK economy grew 0.3% on average in the three months to August, above the market expectations of 0%. Despite the weak production figures, services saw an increase, with TV and film production being the largest positive contributor for the sector, which in general has stood up well in the political storm. From a macro perspective, global economic slowdown starts to have an impact not just on the UK but other developed countries as well.
Last but not least, the year-on-year UK Construction output rose above the market expectations of -0.2%, up to 2.4% in August with the main driver for the sector being new work which was a bit offset by the poor performing repair and maintenance segments.
Economic growth in July was revised upwards to 0.4%, offsetting the poor performance seen in August. Fears of a recession have dominated the news since the second quarter of the year saw the economy shrink for the first time since 2012. A recession is defined by two consecutive quarters showing contraction, which seemed possible after the second quarter. However, despite the contraction in August, thoughts of a looming technical recession have mostly been relaxed thanks to the revised July figures.
Considering all that, investors should still be cautious about their exposure to the UK at the moment. Currently, risky assets such as equities are trading at very attractive multiples, however not without a reason. As the Brexit deadline gets ever closer and there continues to be no indication about leaving with a deal with the EU, the prospects for the British economy remain behind the positive line.
All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.