Shock drop in UK factory orders fuels doubt on recovery

LONDON Wed Oct 24, 2012 12:51pm BST

An employee of JJ Churchill precision engineering polishes a part for a diesel engine at the company's factory in Market Bosworth, central England, October 10, 2012. REUTERS/Tom Bergin

An employee of JJ Churchill precision engineering polishes a part for a diesel engine at the company's factory in Market Bosworth, central England, October 10, 2012.

Credit: Reuters/Tom Bergin

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LONDON (Reuters) - British factory orders posted a surprise fall in October, the CBI's industrial trends survey showed on Wednesday, fuelling fears that a recent timid economic recovery may not last.

Britain probably came out of recession between July and September. Third-quarter gross domestic product figures due on Thursday are expected to show solid growth, boosted by a one-off rebound after an extra public holiday hit output in June.

But Bank of England Governor Mervyn King warned on Tuesday that a slowdown in emerging markets posed a new threat to the British economy, adding that the central bank was ready for more stimulus should positive signs of recovery fade.

The Confederation of British Industry survey's total order book balance dropped to -23 this month from -8 in September, well below even the most pessimistic economist's forecast and the lowest level since December 2011.

"Any hope that the UK manufacturing sector would dodge the bullet from the weakness in the euro zone manufacturing sector looks forlorn today," said BNP Paribas economist David Tinsley.

"We said in response to Governor King's speech last night that he was seeing things in a glass-half-full perspective at the moment," he added.

"If the data flow over the next few weeks continues in the vein we have seen today, then that glass is going start looking pretty empty quickly," he said.

Most economists had expected another dose of BoE quantitative easing via government bond purchases once the current 50 billion pound round is completed in November. However, King's comments fuelled doubts about the timing since he also said the BoE would have to think long and hard before deciding whether to make further asset purchases.

The CBI's quarterly survey showed that manufacturers' sentiment took a hit in the three months to October as companies reported the worst output performance in three years.

"Domestic and overseas demand have both slipped unexpectedly this quarter, while output growth tailed off," said CBI head of economic analysis Anna Leach.

"Sentiment regarding business conditions has also fallen back, particularly for exports," she said.

"UK companies are increasingly concerned by political and economic conditions abroad," she added.

However, companies still expect modest orders and production growth in the coming three months, the CBI said.

(Reporting by Peter Griffiths and Sven Egenter; editing by Stephen Nisbet)

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