Forties pipeline shutdown hits UK economy, knocking trade and industrial output

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The shutdown of the North Sea Forties pipeline in December has taken its toll on the British economy, having hit both UK trade and industrial output at the end of 2017.

Figures released by the Office for National Statistics (ONS) on Friday showed the UK trade deficit widening by £3.8 billion to £10.8 billion in the three months to December 2017.

Goods trading was impacted by a 3.8% – or £2.1 billion – increase in imports from non-EU countries, as well as a drop in exports to the EU which have been worsening since hitting a recent peak in summer 2017.

But the statistics agency said a drop in the UK’s oil exports – as well as large increases in the price of fuel imports – had the largest impact on the trade in goods deficit, which widened by £3.3 billion, while the surplus in services narrowed over the period by £500 million.

The UK’s oil industry was knocked by the temporary shuttering of the Forties pipeline over the bulk of December.

It came after a routine inspection found a hairline crack in the pipe just south of Aberdeen, prompting emergency repairs that stopped the flow of oil and gas from platforms feeding into the system.

The closure also weighed on production output, contributing to a 4.7% drop in mining and quarrying, which partially offset a 1.3% rise in manufacturing in the three months to December, resulting in a mere 0.5% increase in the ONS Index of Production.

ONS senior statistician Ole Black said: “Manufacturing continued to grow strongly in the last three months of the year, with metal goods and pharmaceuticals driving growth.

“However, overall production growth slowed due to the shutdown of the cracked Forties pipeline.”

On a month-on-month basis, total production output fell 1.3% as the Forties shutdown sent mining and quarrying down 19.1%, though for the whole of 2017 output grew 2.1% year-on-year, bolstered by manufacturing’s 2.8% growth.

Additional data released by the ONS pointed to a 0.7% drop in output from Britain’s’ construction industry over the three months to December.

It is the third straight quarterly decline, which the ONS said marked the longest fall in quarterly construction output since 2012.

However, on a month-on-month basis, output grew 1.6% in the final month of 2017.

Mr Black said: “Construction was broadly flat across 2017, thanks to a strong December.

“However, house building and infrastructure were the only bright spots, with all other areas of the industry falling back throughout the year.”

But currency markets took a dim view of the data, sending the pound down around 0.2% against both the US dollar and euro to 1.388 and 1.132 respectively.

“On the face of it, (it is) a mixed set of December data for the UK economy, but this masks a more positive underlying picture,” Howard Archer, chief economic adviser for the EY ITEM Club, said.

“The positives were ongoing marked strength in manufacturing output and a welcome pick-up in construction output – although this was not enough to prevent clear contraction over the fourth quarter.”

While the Forties pipeline shutdown contributed to negative results in both the trade deficit and industrial production, Mr Archer said it was unlikely to result in a downward revision to gross domestic product (GDP).

“Overall, the data do not point to fourth-quarter 2017 UK GDP growth of 0.5% quarter-on-quarter being revised.

“Modestly lower growth in industrial production than estimated was countered by smaller construction contraction,” he assured, adding that it is likely to raise expectations of a Bank of England interest rate hike in May.

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