(Updates with growth forecast in second paragraph.)
Oct. 26 (Bloomberg) -- A U.K. index of factory orders fell and optimism plunged to the lowest level in 2 1/2 years as manufacturers predicted “significantly” weaker demand over the next three months.
The orders gauge declined to minus 18 in October, its weakest reading in a year, from minus 9 the previous month, the Confederation of British Industry said in a report in London today. A quarterly measure of sentiment fell its lowest since April 2009. The CBI said the results meant it was likely to downgrade its U.K. growth forecasts for 2011 and 2012.
Slowing global growth and an escalation of the European debt crisis prompted the Bank of England to expand stimulus this month to prevent the U.K. economy from falling back into recession. British manufacturing will shrink by 0.6 percent this quarter after growing 0.2 percent in the previous three months, according to the CBI, Britain’s biggest business lobby group.
“Sentiment deteriorated sharply and firms expect sizable falls in activity,” Ian McCafferty, CBI chief economic adviser, said in a statement. “Confidence among manufacturers is also being sapped by uncertainty over developments in the euro zone, leading to broader concerns over global growth.”
A monthly gauge of export orders fell to minus 14 in October, the lowest in a year, from minus 12 in September, the CBI said. Out of the 446 manufacturers who took part in the survey, the proportion of them saying that credit or finance was a factor likely to limit export sales in the next three months climbed to its highest since 1968.
The report also showed a quarterly measure of order expectations for the next three months slid to minus 10, the weakest since July 2009, from zero. A gauge of overseas order expectations also dropped. Price pressures have “moderated considerably” as companies kept domestic prices unchanged and cut export prices for the first time since 2009, the CBI said.
“In line with the softening in activity, more firms are now working below full capacity” and “plans for capital spending in the year ahead remain negative.” the CBI said.
McCafferty said the CBI is likely to cut its July prediction for growth of 1.3 percent this year and 2.2 percent in 2012 as the CBI revises its forecasts over the next month.
“I think we will see slower growth over the course of the winter, but so much is going to depend on what happens today and the rest of this week in terms of decisions within the euro zone,” he said. “A credible solution” is very important.’’
Renishaw Plc, a U.K. maker of precision machine tools, said on Oct. 13 that revenue in the three months ended Sept. 30 increased less than predicted and the company was “monitoring” its costs and future recruitment strategy in light of “near- term challenges.”
The economy has barely grown over the past year and unemployment rose to a 15-year high in the three months through August. The Bank of England expanded its bond program by 75 billion pounds ($120 billion) to 275 billion pounds on Oct. 6. It also left the key rate at a record low of 0.5 percent.
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