Manufacturing figures hit highest level this year as construction industry slumps

Output in Britain's manufacturing industry grew at its fastest pace this year in July, but the construction industry slumped and the trade gap failed to improve.

Figures from the Office for National Statistics (ONS) showed the manufacturing sector outstripped expectations to climb by 0.5% in July, driven in part by the production of new cars.

It came as the manufacturing of motor vehicles, trailers and semi trailers raced ahead during the period, expanding at the fastest rate since March 2009 at 13.7%.

The manufacturing jump helped total production rise by 0.2% over the period, despite a 1.4% fall in oil and gas extraction dragging on the wider industry.

However, Britain's deficit in goods and services, the gap between exports and imports, was static at £2.9 billion in July, while construction output sank for the fourth month in a row at 0.9% in response to 1.4% drop in new work.

Kate Davies, ONS senior statistician, said: "Manufacturing remains relatively subdued since the start of the year, though July showed the first significant monthly growth of 2017, with car production increasing partly thanks to new models rolling off the production lines.

"The usual period of summer maintenance of North Sea oil platforms also failed to materialise for a second month running.

"Construction output fell for the fourth month in a row, with private housing-building contracting in July after a strong couple of months.

"The trade deficit was little changed in the three months to July with an increase in imported goods partially offset by an increase in exports of services.

"Exports of goods to the EU increased but this was offset by falling goods exports to the rest of the world."

Sterling was up 0.7% to 1.319 against the US dollar in afternoon trading, while the pound was 0.6% higher versus the euro at 1.096.

Chris Williamson, IHS Markit's chief business economist, said: "Further manufacturing growth is expected in August, given the solid survey data, but the manufacturing upturn needs to be looked at in the wider context of sluggish exports, declining construction activity and consumers being squeezed by low wages and rising prices.

"In this respect, the August PMI surveys highlighted how the economy continued to lose momentum as the robust manufacturing performance was countered by slower growth in services and construction.

"While the data suggest the weakened exchange rate may be helping the economy in terms of rebalancing towards exports and goods production, the rate of improvement remains modest.

"Slowdowns in services and construction are a concern and highlight subdued domestic demand and investment trends."

The ONS confirmed last month that Britain delivered the slowest growth in the second quarter out of the G7 group of nations, expanding by 0.3% in April to June, up from 0.2% during the first three months of the year.