UK manufacturing contraction eases, orders still fall

Dec 03 2012, 21:46 IST
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George Osborne George Osborne
SummaryThe PMI index jumped to 49.1 from October's downwardly revised 47.3

British manufacturing activity shrank less than expected in November but remains fragile, surveys showed on Monday, just two days before finance minister George Osborne presents a half-yearly budget statement.

Weak growth means public borrowing is not falling as Osborne planned earlier this year, and initial figures from a flagship Bank of England scheme to boost lending also released on Monday suggest any big benefit from this source is several months away.

Many economists expect Osborne will present figures on Wednesday showing he is no longer on track to meet the politically sensitive target of putting Britain's debt burden on a downward path by the time of the next election in 2015. That in turn could endanger Britain's triple-A credit rating, which Osborne has promised to defend vigorously.

The monthly Markit/CIPS survey of purchasing managers in the manufacturing industry confirmed the tentative nature of any recovery as the economy emerges from nine months of recession.

The PMI index jumped to 49.1 - its highest level since August - from October's downwardly revised 47.3. That beat the median forecast of 48.0 in a Reuters poll of economists and exceeded even the highest prediction of 48.9.

But the index is still below the 50 mark that separates growth from contraction, where it has been since April.

"We are getting closer to the 50 level, so it is moving in the right direction, but it goes to confirm our view that UK economic activity in the fourth quarter remains sluggish and the immediate prospects don't look particularly bright," said Peter Dixon, economist at Commerzbank.

In a separate survey, members of the EEF manufacturing trade association reported stagnant output over the past quarter - the weakest reading since late 2009 when the country was recovering from its deepest recession in more than 50 years.


Britain has suffered two recessions in the past four years, despite the Bank of England slashing interest rates to a record low of 0.5 percent and creating 375 billion pounds ($601 billion) of new money - equal to around a quarter of GDP - to boost economic growth.

The BoE launched its Funding for Lending Scheme at the start of August, offering banks cheap finance if they in turn lend on to households and businesses, aiming to boost the economy in ways that its quantitative easing bond purchases have failed to.

British banks and building societies drew down 4.36 billion pounds from the programme in its first two months,

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