Bloomberg News

U.K. Manufacturers’ Optimism Slides to Two-Year Low, CBI Says

July 27, 2011

July 27 (Bloomberg) -- A U.K. index of factory orders fell and optimism plunged to the lowest in two years as exports flagged, adding to signs the economic recovery is struggling.

The orders gauge declined to minus 10 in July from 1 in June, the Confederation of British Industry said in a report in London today. A quarterly measure of sentiment fell to minus 16 from 9 in April, while an index of export expectations for the next three months slid to zero, the weakest in a year.

Data yesterday showed economic growth slowed in the second quarter and manufacturing output fell as the earthquake and tsunami in Japan crimped production, countering the benefits to exporters from a weaker pound. The reports support the case for Bank of England policy makers to leave the benchmark interest rate at a record low of 0.5 percent to bolster the recovery.

The slowdown in factory orders and output reflected the impact of the quake on supply chains and concerns about the euro-area crisis and squabbling over the U.S. debt ceiling, Ian McCafferty, CBI chief economic adviser, said in a statement. “How far the slowdown will be borne out is yet unclear, but the combination of political and economic uncertainty is sapping confidence,” he said.

A monthly gauge of exports fell to minus 8 in July from zero in June, said the CBI, the U.K.’s biggest lobby group. A quarterly measure of foreign sales also dropped. Inflation pressures may be easing, with an index of expected selling prices dropping to 4, the lowest since December 2009.

The report also showed a quarterly measure of expectations for total new orders in the coming three months fell to zero in July, the lowest in two years, from 15 in April. A measure of new orders for the past three months dropped to 8 from 20.

Manufacturing Slump

The Office for National Statistics said yesterday that manufacturing output declined 0.3 percent in the second quarter, the first fall in two years, dragging down expansion in gross domestic product to 0.2 percent from 0.5 percent in the first three months of the year. The economy’s first-quarter growth was led by exports after the pound’s drop of about 25 percent on a trade-weighted basis since the start of 2007.

Edinburgh-based Wolfson Microelectronics Plc, a maker of audio chips for smartphones and tablet computers, said July 25 second-half revenue will be “flat” from last year as consumer demand slowed.

Bank of England officials have split three ways on their policy as the recovery sputters while inflation soars. Consumer prices rose an annual 4.2 percent in June, more than double the bank’s 2 percent target.

Seven of the nine-member monetary policy committee voted this month to keep the key interest rate at 0.5 percent, while two members sought a quarter-point increase to tame price gains. One was in favor of expanding the bank’s bond-purchase program from the current 200 billion pounds ($328 billion).

--Editors: Fergal O’Brien, Simone Meier

To contact the reporter on this story: Jennifer Ryan in London at jryan13@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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