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Construction and manufacturing output drop signals economic slowdown

Output in Britain's construction and manufacturing industries remained under pressure in February and the trade gap widened, pointing to a slowdown in momentum for the UK economy.

Figures from the Office for National Statistics (ONS) showed construction output came in shy of expectations, falling by 1.7% in February, down from a revised reading of 0% in January.

Industrial production output also fell short of economists' predictions, recording a monthly drop of 0.7% compared to a decline of 0.3% the month before.

The move was largely caused by a fall in electricity and gas demand driven by unseasonably warm weather, while manufacturing also eased back by 0.1% in February compared to a contraction of 1% in January.

Britain's deficit in goods and services, the gap between exports and imports, expanded by £700 million on the month to £3.7 billion in February

The increase was triggered by a jump in imports of non-monetary gold and aircraft, with total exports falling by £400 million and total imports rising by £300 million.

Stripping out erratic items such as ships, silver, aircraft and precious stones, the ONS said the trade deficit shrunk to £2.5 billion in February from £3 billion the month before.

Kate Davies, ONS senior statistician, said: "While manufacturing was broadly flat in February, unseasonably warm weather reduced gas and electricity use, pulling down overall production.

"The overall trade deficit worsened, but excluding erratic items the picture improved, as imports fell more than exports.

"There were small falls across a range of construction sub sectors for the second month running, following a record performance for the industry at the end of 2016."

The construction industry was dragged down in February by a 7.3% month-on-month slide in infrastructure work, while new housing also fell by 2.6% over the period.

Despite monthly falls, the construction and manufacturing industries saw a more positive picture over the three months to February.

Construction output grew for the fourth three-month period on the bounce, increasing by 1.5%, while manufacturing increased by 2.1%.

Howard Archer, chief UK and European economist at IHS Markit, said the disappointing slew of data "fuels suspicion" that the British economy "slowed markedly" in the first quarter.

He said: "We suspect UK GDP growth in the first quarter of 2017 slowed to 0.4% quarter-on-quarter from 0.7% quarter-on-quarter in the fourth quarter of 2016 - this would be the weakest growth rate since the first quarter of 2016.

"Important to the outlook for the UK economy over the coming months is whether an improving export performance can at least partly compensate for a likely marked softening in domestic demand resulting from softer consumer spending and limited business investment."

Jack Coy, economist at the Centre for Economics and Business Research (Cebr), said the outlook for manufacturers still looks positive despite February's slowdown.

"Overall, although somewhat disappointing, today's data do not dampen the longer-term outlook of industrial production.

"Boosted by increased competitiveness from the weaker pound, manufacturers are enjoying bright prospects and strong order books.

"Furthermore, the exchange rate effect is likely to be magnified by strong demand in key export markets."

Following the ONS announcement, the pound was down 0.4% versus the US dollar at 1.241 and 0.3% lower against the euro at 1.167.

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