Britain’s economy appeared to be struggling to pick up pace even before yesterday’s inconclusive election result, with industrial output rising less than expected in April after a poor start to 2017.
The combination of a lack of economic momentum and the heightened uncertainty about how Prime Minister Theresa May can advance her plans for Brexit might prompt her new government to relax its grip on spending, analysts said.
Industrial output rose 0.2 per cent on the month in April after falling for three months. It was much weaker than a forecast 0.8 per cent, and over a three-month period it contracted for the first time since November, the Office for National Statistics said.
Manufacturing, which is part of overall industrial output, also saw output rise 0.2 per cent in April, compared with a forecast of 0.9 per cent in the Reuters poll.
The construction sector was much weaker than expected too.
After last year’s shock decision by voters to pull Britain out of the EU, Britain is now facing more political upheaval after Ms May’s unexpected failure to win a parliamentary majority.
“There is clearly a risk that the election result causes growth to weaken towards the end of the second quarter,” Ruth Gregory, an economist, said.
“That said, this is unlikely to spell disaster since the economy has proved pretty resilient to political uncertainty in the recent past.”
Britain’s economy slowed sharply in the first three months of 2017, making it the worst performer among the Group of Seven nations after outpacing its peers in 2016, despite the shock of the Brexit vote.
As well as rising inflation and slow wage growth weighing on consumers, the economy now has to contend with heightened political uncertainty about Britain’s ability to proceed with its plan to leave the European Union.
Britain’s economy grew by a below-par 0.2 per cent in the three months to May, the National Institute of Economic and Social Research, a think tank, said.
Investors are watching to see if Ms May responds to the increase in support for the opposition Labour Party by relaxing her grip on public spending, something which would boost the economy.
Chris Iggo, fixed income chief investment officer at AXA Investment Managers, said that if the government failed to boost the economy, the Bank of England might resort to reviving its massive bond-buying programme again.
The BoE said before the election that it expected some of the impact of slower consumer spending would be eased by stronger exports driven by the pound’s fall since the Brexit vote last year. (Reuters)