Bloomberg News

U.K. Services, Manufacturing Probably Slowed in April

April 27, 2012

U.K. services, manufacturing and construction probably waned this month as Bank of England policy makers prepare to discuss whether they need to extend stimulus after the economy slipped back into recession.

A gauge of factory activity based on a survey of purchasing managers will fall to 51.5 from 52.1 in March, according to the median estimate of 27 forecasts in a Bloomberg News poll. A reading above 50 indicates expansion. An index of services, the largest part of the economy, will decline to 54.1 from 55.3, while a construction measure will also fall, separate surveys of economists show.

U.K. gross domestic product fell in the first quarter, pushing the economy into its first double-dip recession since the 1970s. While Bank of England officials have said that may hurt confidence, they must balance that risk with the threat from faster-than-targeted inflation at their May 9-10 meeting.

“The purchasing managers’ surveys for April could have a key role to play as to whether the Bank of England does more quantitative easing in May,” said Howard Archer, chief European economist at IHS Global Insight in London. If the reports “point overall to faltering activity, pressure will mount on the bank to provide further help to the economy.”

The manufacturing report will be published on May 1, followed by the construction report on May 2 and the services report on May 3.

Data Conflict

The government figures on April 25 showing the economy contracted by 0.2 percent in the first quarter were at odds with the purchasing-manager reports for the period, which pointed to growth of as much as 0.5 percent, according to Markit Economics, which compiles the surveys.

The GDP estimate was the first of three for the quarter and some economists said output may be revised higher when more information becomes available.

Bank of England policy makers have indicated a preference for underlying indicators over headline GDP in assessing the economy. Still, policy maker Martin Weale said on April 26 that the first-quarter GDP data strengthened the argument for extending stimulus again. The central bank is in the final month of a 50 billion-pound ($81 billion) round of bond buying.

While the economic recovery has struggled to gather momentum, policy makers have also said that inflation may turn out faster than they previously forecast as rising energy costs stoke price pressures.

Consumer-price growth accelerated in March for the first time in six months, quickening to an annual 3.5 percent. Inflation has been above the central bank’s 2 percent target every month since December 2009.

To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net

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


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