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A ‘Dramatic’ Drop In Car Production Hits UK Economy Hard

A ‘Dramatic’ Drop In Car Production Hits UK Economy Hard
Official figures in the United Kingdom showed that there had been a "dramatic" drop in car production along with reduction of stockpiles by auto companies which resulted in a shrinking of the economy in April. 
According to statistics from the Office for National Statistics (ONS) of the UK, there was a shrinking of 0.4 per cent month-on-month in the country’s economy for the month of April. This contraction brought down the overall economic growth for the UK economy in the last three months to 0.3 per cent.
According to a statement issued by the UK last month, car production in the UK dropped by almost 50 per cent because of shutdowns of factories for the purposes of coping up with the uncertainty and disruption from a March Brexit.
There was a spike in economic growth in the UK just before the run up to the March 29 deadline for the UUK leaving the European Union because of stockpiling of raw materials and parts and goods by companies in the anticipation of a disruption to supply chains because of Berxit.
However, after the extension of the Brexit deadline to October, the UK industry saw a reverse of what it experienced in months before Marsh as industries used up the stockpiled goods which reduced procurement and purchases.
"The hangover that's followed the UK's original exit date is proving stronger than anticipated," said Yael Selfin, chief economist at accountants KPMG UK. "Today's figures signal the UK economy is likely to experience more subdued growth for the rest of the year, marred by Brexit uncertainty."
"The significant drop in car manufacturing, and in broader manufacturing activity at the start of [the second quarter], point at more than just a reversal of the stock building effect seen as businesses prepared for an expected Brexit in March."
According to ONS statistician Rob Kent-Smith, there was evidence of some weakness in economic growth across the latest three months with a shrinking of the economy in April primarily because of a very significant drop in the production of cars in the country as companies procured stockpiles in the because of the uncertainty ahead of the UK's original EU departure date which resulted in planned shutdowns in production to use up the stockpile of goods. .
"There was also widespread weakness across manufacturing in April, as the boost from the early completion of orders ahead of the UK's original EU departure date has faded,” he said.
The April contraction was more than expected by the market. The figures suggest "underlying growth is pretty sluggish", said Ruth Gregory, senior UK economist at Capital Economics. "With the Brexit paralysis and a slowing global economy taking its toll, we doubt GDP will grow by much more than 1.5% or so in 2019 as a whole and expect interest rates to remain on hold until the middle of next year."
For the entire of 2019, there would be a 10 per cent decrease year-on-year in car production in the UK according to the estimates of the Society of Motor Manufacturers and Traders (SMMT). A favourable deal for exit between the UK and the EU could help in an uptick in demand in the auto market at the end of the year, it said. What would also aid in a recovery would be a substantially long transition period to allow companies to do business outside of the single market.

Christopher J. Mitchell

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