UK industrial output limped into Q2, even before new political chaos

By William Schomberg

LONDON (Reuters) - Britain's economy appears to have struggled even before Friday's inconclusive election result, with data on Friday showing industrial output rose less than expected in April after falling in the previous three months.

Industrial output rose 0.2 percent on the month in April, much weaker than a forecast 0.8 percent, and contracted over a three-month period for the first time since November, the Office for National Statistics said.

Manufacturing, which is part of overall industrial output, also saw output rise 0.2 percent in April, compared with a forecast of 0.9 percent in the Reuters poll.

The construction sector was weaker than expected too.

After last year's shock decision by voters to pull Britain out of the European Union, the country is now facing yet more political upheaval after Prime Minister Theresa May's unexpected failure to win a parliamentary majority.

"There is clearly a risk that today's election result causes growth to weaken towards the end of the second quarter," Ruth Gregory, an economist with Capital Economics, said.

"That said, this is unlikely to spell disaster since the economy has proved pretty resilient to political uncertainty in the recent past."

Britain's economy slowed sharply in the first three months of 2017, making it the worst performer among the Group of Seven nations after outpacing its peers in 2016, despite the shock of the Brexit vote.

As well as rising inflation and slow wage growth weighing on consumers, the economy now has to contend with heightened political uncertainty about Britain's ability to proceed with its plan to leave the European Union.

The Bank of England has said it expects some of the impact of slower consumer spending will be eased by stronger exports on the back of a fall in the value of the pound since the Brexit vote last year.

ONS data showed on Friday that Britain's goods trade deficit with the rest of the world narrowed to 10.4 billion pounds ($13.2 billion) in April. Economists polled by Reuters had expected it would shrink by less to 12.0 billion pounds.

But the smaller deficit was due mostly to a sharp fall in goods imports with volumes in monthly terms down more than 5 percent in April, almost reversing a surge in March.

Exports edged down in April from March.

Over the three months to April, exports were up 2.1 percent while imports were flat but the ONS said there was no sign yet that exporters were cutting their prices to reflect sterling's fall in order to strengthen their competitive advantage.

"Britain won't enjoy a trade boost until exporters reduce margins and seek greater market share instead," Samuel Tombs, an economist with Pantheon Macroeconomics, said.

Britain's overall trade deficit narrowed sharply to just over 2 billion pounds in April, reflecting the fall in imports.

The ONS also released figures for construction output in April which fell 1.6 percent from March and was down 0.6 percent on the year. The Reuters poll had pointed to growth of 0.3 percent on the month but a fall of 0.4 percent compared with April last year.

($1 = 0.7853 pounds)

(Editing by Tom Heneghan)