GDP rising at fastest pace this year as factories boom in winning streak for UK industry

Ford factory
Factory output is rising strongly, supporting UK economic growth Credit: Carl Court/Getty 

Britain’s factories are booming, with industrial output now on its longest growth streak for 23 years.

The surge in manufacturing and mining is driving up growth in the wider economy – the National Institute for Economic and Social Research believes GDP rose by 0.5pc in the three months to October, faster than any quarter so far this year. 

Output in the sector has risen for six consecutive months, smashing expectations by growing at 0.7pc in September and 1.1pc over the third quarter as a whole, according to the Office for National Statistics.

Factory output rose 1.1pc in the quarter with transport – mainly car production – up 3pc.

Mining and quarrying grew by 2.1pc, while electricity, gas and other related utilities rose by 1.1pc.

Economist James Smith at ING said: “Strong global growth and the effect of the weaker pound seems to be finally coming through in the manufacturing numbers” as the sector “fights back” against a slowdown.

NIESR's Amit Kara believes this healthier growth will push interest rates higher.

"If, as we expect, the economy continues to expand at this pace and inflation remains elevated, there is a case for the Bank of England to gradually raise the policy rate to stop the economy from overheating," he said.

"Consistent with that view, our latest forecast for the UK is conditioned on a 25 basis points increase in Bank Rate every six months such that the policy rate reaches 2pc in 2021."

However, the construction sector has slipped into a recession, contracting for two consecutive quarters.

Output fell by 0.9pc in the third quarter with particularly sharp falls in work on commercial construction projects and on repairs and maintenance in the housing sector.

Infrastructure output fell by 1.2pc on the month and 2.1pc on the quarter.

There was one bright spot – new private housing and public housing construction both expanded in the quarter, up by 1.8pc and 4.9pc respectively.

Overall construction output in September was still up 1.1pc compared with the same month of 2016, driven by a 5.4pc rise in private housing and 14.6pc leap in new public residential work.

Meanwhile Britain’s trade balance deteriorated in the third quarter, rising by £3bn to £9.5bn.

Exports of goods and services fell by 0.2pc, or £300m, while imports rose by 1.6pc, or £2.6bn.

In particular, increased imports of machinery and fuel – partly due to the higher oil price – tipped the balance further into deficit.

Some relief came from the sale of more services abroad, as business services such as engineering sold better abroad.

The balance of trade in services hit a record high of £26.3bn in the quarter.

And total exports of goods and services hit a record high in the month at £51.6bn, but that was not enough to offset the rise in imports, which are also close to a record level.

Samuel Tombs at Pantheon Macroeconomics said UK firms are putting up prices abroad rather than ramping up production.

“The main problem remains that exporters have increased their sterling prices so far the competitiveness of UK goods in global markets has improved only marginally,” he said.

“In foreign currency terms, the price of exports rose by 0.9pc month to month in September, leaving them only 6pc below their late 2015 peak. Meanwhile, the lack of domestically-produced alternatives for the goods that Britain imports means that it simply has had to accept higher import prices."