Shutdowns in auto industry deliver sharp shock to GDP

Shutdowns in auto industry deliver sharp shock to GDP

Shutdowns in auto industry deliver sharp shock to GDP

Factories are, at present, using stockpiled reserves while some are undergoing summer maintenance closures.

It was the sharpest monthly decline for three years, driven by a steep fall in manufacturing.

Yale Selfin, chief economist at KPMG UK, said: "The hangover that's followed the UK's original exit date is proving stronger than anticipated".

"Note too that three-month on three-month growth in services output has slowed to its current 0.2% rate on two other occasions since the European Union referendum in 2016, before swiftly rebounding".

The UK economy is set to contract in the second quarter after stockbuilding ahead of the original Brexit departure date boosted growth in the first quarter, the National Institute of Economic and Social Research, or NIESR, said Monday.

Samuel Tombs, chief United Kingdom economist at Pantheon Macroeconomics, said April's drop in GDP nearly entirely reflects the unwinding of the boost to activity in the first quarter from precautionary pre-Brexit stockpiling. After all, that could well save them the expense of buying a present, booking a baby sitter, splashing out on new clothes etc.

In the event, Prime Minister Theresa May delayed departure with just days to go.

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The auto industry brought forward its annual shutdown - usually used to put in new equipment, prepare for new models and so on.

Growth may bounce back, but then Brexit is now scheduled for 31 October. Repeat the whole operation again or not bother?

This was due to a drop in auto manufacturing after several automobile plants went ahead with planned shutdowns, which had originally been scheduled to coincide with the immediate aftermath of Brexit.

Transport equipment was the biggest drag, contracting by 13.4% in April.

"We had been expecting GDP growth to be no more than 0.2% quarter-on-quarter in the second quarter, but even this muted performance is now looking somewhat optimistic", Howard Archer, chief economist at consultants EY ITEM Club, said in a note.

Josie Dent, an economist from the CEBR also fears that Brexit stockpiling will weigh down the economy in the coming months: "Today's data paints a sobering picture". According to The Society of Motor Manufacturers and Traders (SMMT), the number of cars manufactured has been reduced to half.

But it has said a no-deal Brexit will make the declines worse, with the threat of border delays, production stoppages and additional costs. "Employment levels are at a record high and wages growing in real terms".

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