Longer UK slump looms as manufacturing falters

Tue Jun 12, 2012 11:17am EDT
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By Olesya Dmitracova and Sven Egenter

LONDON (Reuters) - British manufacturing output posted an unexpected fall in April, raising the risk of a longer recession and turning up pressure on policymakers to take action to boost economic growth.

The Bank of England shied away from injecting more cash into the struggling economy last week, but on Monday central banker Adam Posen called for further purchases of assets, focusing on loans to small and medium-sized companies.

Britain is still suffering from a slump that followed the 2007-2009 financial crisis and slipped back into recession around the turn of the year. With the euro zone crisis hitting exports and making companies reluctant to invest and hire, economists fear another quarter of contraction.

The National Institute of Economic Research, a leading think-tank, estimates the economy eked out 0.1 percent growth in the three months ending in May, but an extra public holiday in June could wipe out any slight increase in quarterly output.

Manufacturing output dropped 0.7 percent in April after a 0.9 percent rise in March, the Office for National Statistics said on Tuesday, disappointing hopes for an unchanged reading.

The wider reading of industrial output, which includes energy production and mining, was unchanged in April after a 0.3 percent drop in March, but also below forecasts.

"Given that the euro zone crisis has intensified since April and recent manufacturing surveys have been very weak, it seems likely that the industrial sector will remain a drag on overall GDP growth for some time to come," said Samuel Tombs, economist at Capital Economics.

Adding to a gloomy picture, the outlook for the British housing market worsened as the euro zone crisis deepened and sales took a temporary hit from the expiry of a tax holiday, while growth in permanent job placements slowed in May and employers said they expected to take on fewer new staff in the months ahead.   Continued...

Staff work on the Jaguar XJ production line at their Castle Bromwich Assembly Plant in Birmingham November 29, 2011. REUTERS/Eddie Keogh