Despite Brexit, European Economy Shows Signs Of Momentum

Britain's Brexit-bound economy is showing little sign that its leaden performance in the first half of 2017 is improving much, despite hints of better times for manufacturers in data released on Friday.

Factory output increased at the fastest pace this year during July, but this was set against a sharp decline in the construction industry and another lacklustre month for trade.

The official figures suggested the world's fifth-biggest economy continued to lag the strong recovery in the eurozone and is now growing slowly in the third quarter after suffering its slowest first half of the year since 2012.

Separately on Friday, the British Chambers of Commerce said the economy was "treading water" ahead of Brexit, adding that the pound's sharp fall since last year's vote to leave the European Union had done more harm than good.

That muted assessment was backed up by the official data which showed little help for exporters from sterling's weakness.

"The economy is clearly underperforming compared to what is going on globally and regionally, but weakness in growth does not appear to be intensifying," JPMorgan economist Malcolm Barr said.

The Office for National Statistics said manufacturing output rose 0.5 per cent in July, above economists' forecasts in a Reuters poll, after car production reversed a dip in the previous month.

But growth in the broader measure of industrial output slowed to 0.2 per cent, in line with forecasts as a lack of summer maintenance of North Sea oil fields boosted production more than usual for the time of year. The data suggested that the Bank of England, which holds its next monetary policy meeting next week, will remain cautious about raising interest rates despite an inflation rate heading for three per cent, above its two per cent target.

Trade trouble?

Business surveys over the last week suggested manufacturers look set for a stronger end to the year, boosted by exports - especially to the European Union. Still, official data have yet to reflect this.

The ONS said Britain's trade deficit in goods edged up to 11.576 billion ($15.24 billion) in July, the biggest since March. Goods exports to the EU increased but this was offset by a fall in exports to the rest of the world.

In volume terms, goods exports in the three months to July grew by 1.2 per cent compared with the previous three months, the weakest increase since October and showing little sign of a boost from the pound's post-Brexit vote plunge.

Rising inflation and slow wage growth is expected to weigh on the economy throughout this year although the Bank of England hopes that will be eased by stronger exports helped by the fall in the value of the pound since the Brexit vote.

The ONS also said construction output in July dropped by 0.9 per cent on the month - the biggest drop in three months and below all forecasts in the Reuters poll.

On the year, output was 0.4 per cent lower, and a sharp fall in second quarter orders raises the prospect of further decline.

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