UK GDP & Manufacturing Production Outlook

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Coming up on Thursday, we have important GDP data coming out of the UK. The Manufacturing PMI will follow.

Both datasets are typically released 40 days after the month ends. Therefore, the statistics will not reflect the significant impact of the COVID-19 pandemic on the economy.

The print on Thursday, regardless of what the actual numbers are, still could stand out as the best for a considerable amount of months to come.

Expectations are for GDP to show a modest surge of 0.1% from the previous month.

February Business Activities

The UK economy started to pick up the pace in January 2020, after slowing in Q4 2019.

Consumer spending recorded growth in January, but the weather in February has likely halted economic activities due to the floods. There was also the beginnings of mounting concern surrounding the coronavirus, as it was in its early stages of spread.

PMI showed expansion at a snail-like pace in the services and manufacturing sector, while consumer spending remained mild as consumers opted to stay indoors due to the severe weather and floods in February.

The flash UK Composite Purchasing Managers’ Index printed a 53.3 reading. A reading of 50 or above shows expansion. This also happens to be the second-highest reading recorded in the last 16 months.

Construction PMI also surged in February, printing 52.6 vs. 48.4 in January. The impact of the coronavirus was felt, however, as the supply chain was getting disrupted. It affected manufacturing capacity along with exports.

Meanwhile, uncertainty around a Brexit deal still looms, even with the successful conclusion of the elections and UK leaving the EU on Jan 31st.

With all this in mind, we can expect UK GDP to grow by approximately 1.1%. This would be the slowest growth in the provided time period. But, as mentioned, GDP numbers won’t reflect the COVID-19 implications.

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Manufacturing Production Stagnates

With the uncertainty around a Brexit deal, the manufacturing sector saw the biggest plunge of the last three years. Europe is reluctant to do business with its UK counterparts untill a clear cut deal is announced.

Exports, therefore, turned negative for the first time since 2016, according to a report by Make UK.

Seamus Nevin, chief economist at Make UK, said:

“Even before the current situation the shocking drop in exports could not have come at a worse time ahead of potentially difficult trade talks where the clock is running down fast”.

UK PMI for February showed weakness, falling to 37.1 from a previous 53. The service index dropped to 35.7 from 53.2 previously. A reading below 50 indicates worsening economic conditions.

Expectations are for GDP to fall by 2% pushing the economy to contraction.

Things, however, are expected to deteriorate further, as the implications of the pandemic are getting severe.

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