Economic growth slowed again in February as the construction and manufacturing industries both stalled, a pair of oil refineries closed for maintenance, and the export boost from the weak pound began to fade.
The Bank of England had already cut its first-quarter growth forecasts from 0.4pc to 0.3pc because the icy Beast from the East made families stay at home instead of hitting the shops. But now economists fear even this estimate is too high.
The new figures “look consistent with GDP growth slowing to 0.2pc in the first quarter – below the Monetary Policy Committee’s 0.3pc forecast – from 0.4pc in the fourth quarter, casting doubt over whether a May rate hike is as likely as markets currently expect”, said Samuel Tombs at Pantheon Macroeconomics.
“We estimate that economic growth nudged lower to 0.2pc in the first quarter of 2018,” he said.
“The main reason for the weakness was severe weather in March, which is likely to have disrupted activity in all major sectors of the economy.”
Manufacturing output fell by 0.2pc in February, the Office for National Statistics said, and January’s 0.1pc expansion was also revised down to zero.
Falling output of electrical goods, machinery, textiles and plastics hit the figures.
Growth in industrial production overall – which includes manufacturing as well as industries such as mining and quarrying, and utilities – slowed to 0.1pc for the month.
A major cause was that two of the UK’s six refineries were closed for refurbishment. However, growth was supported by February’s unusually cold weather, which boosted domestic energy consumption.
At the same time construction output tumbled by 1.6pc in the month, defying expectations of a 0.9pc increase. This drop may not be entirely weather related. The ONS said maintenance work led the decline, even as residential building and infrastructure construction increased.
The trade deficit increased in the three months to February, rising by £0.4bn to £6.4bn, as a dip in imports was more than offset by a larger fall in exports – which the ONS said coincided with a strengthening of the pound.
However, the overall slowdown may only be a temporary wobble, rather than a longer-term slowdown in the economy.
“While a continuation of such news may generate some nervousness in markets about whether the Bank of England will deliver another rate hike next month, it is worth pointing out that there is another full round of economic news before the Bank announces its decision,” said George Buckley at Nomura.
“We continue to expect a 25-basis point move on May 10 on the assumption of better economic news to come.”
Chief economist Lee Hopley at manufacturing industry group EEF said: “The data looks more like a temporary wobble than a turn for the worse. Whilst other indicators may have softened since the start of the year, ongoing growth in the global economy should continue to spur growth across manufacturing in the coming quarters.”
Call Smart Invest UK on 0203 637 5844