UK economy fights to stay out of reverse as carmakers surge

The biggest jump in car production for over 20 years fuelled hopes on Wednesday that the UK economy could avoid crashing into reverse gear for the first time since 2012.

Official figures showed GDP rising 0.3% in May — much stronger than forecasts of a rise of 0.1% — helped by a 24% surge in car-making, the largest leap since at least 1995.

The recovery came after major manufacturers such as BMW and Peugeot brought forward annual maintenance shutdowns to April to help dodge potential disruption in the aftermath of the original March 29 Brexit deadline, which has now been pushed back to October 31.

The partial recovery in May from April’s car-making slump came alongside revisions to earlier data which put growth for the three months for May at 0.3%, again much stronger than expected.

Manufacturing overall was 1.4% higher in May after a 4.2% slump in April while construction also bounced back 0.6% in May.

Although much depends on the Office for National Statistics data for June — which threatens to be weak following last week’s dire survey data from builders, manufacturers and services firms — Nomura’s George Buckley said stagnation was as likely as outright contraction.

EY Item Club’s chief economic adviser Howard Archer said: “There is an increased chance now that the economy may have avoided contraction in the second quarter — GDP will need to have grown 0.1% in June to have been flat over the second quarter. Having said that it is very far from certain that the economy grew at all in June, given largely poor survey evidence from the month.”

The economy is expected to return to growth in the third quarter although Bank of England Governor Mark Carney has flagged up increased downside risks to the outlook amid global trade tensions and and the rising chances of a no-deal Brexit.

The volatility in the growth figures is also likely to continue as firms may resume stockpiling again ahead of the October 31 deadline. ING Bank’s James Smith said: “We think the Bank is likely to keep policy on hold this year.”

IHS Markit’s chief business economist Chris Williamson said: “As the fog from these one-off factors clears, it’s becoming increasingly evident that the underlying health of the economy is also deteriorating.”