Slowing UK lending, factories signal hard road ahead

Mon Oct 1, 2012 7:39am EDT
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By Olesya Dmitracova and Sven Egenter

LONDON (Reuters) - Lending to British consumers fell in August and manufacturing activity shrank in September, weighing on prospects of a sustainable economic recovery in the coming months.

Many economists reckon Britain exited recession in the third quarter, rebounding after an extra national holiday in the previous quarter and helped by sales of tickets for the London Olympics and Paralympics.

But Monday's figures highlighted the risk that the economy may falter again.

Mortgage lending dropped by 276 million pounds last month, Bank of England data showed - the sharpest decline since December 2010 and wrongfooting economists, who had expected a rise. Approvals numbered 47,665 against an expected 49,000.

A key measure of activity in the manufacturing sector, the CIPS/Markit Purchasing Managers' Index (PMI), fell to 48.4 in September from August's upwardly revised 49.6, dipping further below the 50 mark that separates growth from contraction.

"The main conclusion from what we've seen in recent months is the underlying economy still looks fragile," said RBS economist Ross Walker. "We're going to see a bounce in Q3 GDP, but if we look towards 2013 the numbers are not particularly encouraging."

The third quarter marked the first decline in business in nine quarters for British financial firms, according to a survey by the Confederation of British Industry and PriceWaterhouseCoopers.

Sterling fell against the euro after the PMI data, which reinforced views that the Bank of England will add more stimulus once its current 50 billion pound round of government bond purchases is completed in November.   Continued...

A finished steel slab comes off the roller table at SSI steel plant at Redcar, northern England May 29, 2012. REUTERS/Nigel Roddis