Bloomberg News

U.K. Output Index Drops, Indicating ‘Serious Risk’ of Recession

November 07, 2011

Nov. 7 (Bloomberg) -- A U.K. output index declined in October to the lowest level in more than two years, suggesting a “serious risk” of the economy slipping back into recession, accountancy firm BDO LLP said.

The gauge estimating output over the coming three months dropped to 92.6, the lowest since June 2009, from 93.3 the previous month, BDO said in an e-mailed statement today. Readings below 95 indicate contraction. A measure of employment dropped to 93.4 from 95.9.

The Bank of England will probably leave its bond-purchase program at 275 billion pounds ($440 billion) this week. It expanded stimulus last month as Europe’s debt crisis worsened and the U.K. government’s fiscal squeeze curbed domestic demand. Chancellor of the Exchequer George Osborne will present new economic forecasts and a statement on spending on Nov. 29.

“We urge the chancellor to tackle the slowing recovery head on in his autumn statement,” Peter Hemington, partner at BDO, said in the statement. “We would like to see more focus on increasing capital spending.”

A separate report today showed confidence fell “sharply” at small manufacturers last month and consumers’ outlook for the job market also declined.

A gauge of manufacturers’ domestic orders was minus 4 in October, and an index for export orders was 1, according to the Confederation of British Industry, the U.K.’s biggest business lobby. Lloyds Banking Group Plc said its index of employment confidence fell 5 points to minus 72 in October, the lowest in two years.

The central bank added to so-called quantitative easing even as inflation accelerated to 5.2 percent. The Ernst & Young ITEM Club said today it sees inflation slowing to below the bank’s 2 percent target in the next 12 months as pressure from energy costs ease and a sales-tax increase in January drops out of calculations. Lower commodity costs may shave 76 pounds off of consumers’ food bills, it said.

All 38 economists in a Bloomberg News survey forecast the Bank of England will keep its bond plan unchanged on Nov. 10. The bank will also keep its key interest rate at a record-low 0.5 percent, said all 52 economists in another survey.

--Editors: Fergal O’Brien, Andrew Atkinson

-0- Nov/04/2011 15:25 GMT

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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