Warning lights flash as economy stutters

By Christina Fincher

LONDON (Reuters) - The manufacturing sector contracted in June at its sharpest pace since 2001 while house prices fell for an eighth straight month, according to figures on Tuesday that darkened an already bleak economic outlook.

Worries about stuttering economic growth and rising inflation have already led analysts to downgrade their growth forecasts.

Some are now openly talking about the risk of recession.

"The news just goes on getting worse for the UK economy," said Michael Saunders at Citigroup.

"Yesterday saw plunges in consumer confidence and mortgage approvals. Today has brought another sharp fall in house prices plus signs that manufacturing activity is heading into recession."

The Nationwide building society said prices slipped 0.9 percent last month after a 2.5 percent drop in May which had been the sharpest fall since the series began in 1991. Prices were 6.3 percent down on the year, the biggest decline since December 1992.

Homebuilders and furniture retailers are already feeling the pinch.

Carpetright chairman Philip Harris, a 50-year veteran of carpet selling, warned on Tuesday that the coming year would be one of the most difficult he had ever seen.