April 26, 2011 / 11:27 AM / 9 years ago

Manufacturers make muted start to second quarter

LONDON (Reuters) - Manufacturers made a lacklustre start to the second quarter of 2011, with orders unexpectedly weakening in April, a survey showed on Tuesday, suggesting the UK’s economic recovery remains fragile.

A worker inspects the spinning machines winding cashmere fibres onto cones at a textiles company in Scotland May 20, 2008. REUTERS/Sarah Marsh

The figures come a day before a preliminary estimate of gross domestic product in the first three months of this year, expected to show the economy expanded by only 0.5 percent after a 0.5 percent decline at the end of 2010.

Both Chancellor George Osborne and Bank of England policymaker Andrew Sentance — who each have advance access to the GDP data — made cautious statements about the growth outlook on Tuesday. Osborne told fellow ministers that Britain’s economic situation was “still difficult.”

The Confederation of British Industry said its monthly factory orders balance fell to -11 in April — its lowest since January — down from a three-year high of +5 set last month.

Economists had expected a smaller decline to +3, and June gilt futures briefly edged up to a session high after the data.

“While still decent compared to long-term norms, the April CBI industrial survey adds to recent mounting signs that the hitherto buoyant manufacturing sector may be gradually coming off the boil,” said IHS Global Insight economist Howard Archer.

The survey also adds to the Bank of England’s dilemma about how to curb inflation while the economy was still shaky.

In a sign that price pressures are continuing to build in the economy, both the monthly and quarterly price expectations balances in the CBI survey rose to +36 in April — their highest since January 1990.

Sentance, a former CBI economist and the Bank of England’s most hawkish rate setter, said the Bank was losing some of its inflation-fighting credibility by not raising interest rates. He also played down the prospect of a strong reading from the upcoming GDP release.

After Britain’s last recession in the 1990s, preliminary GDP estimates had given too gloomy a picture, Sentance said, adding that analysts should look at a range of survey data as well.

Manufacturing has been the bright spot in Britain’s recovery, but other surveys also show that the sector may be running out of steam.

Nonetheless, the CBI said April’s reading was consistent with a continued recovery in the sector, noting its quarterly survey, published at the same time, was strong.

That showed the order book balance for the past three months rose to +20 from +18 in the January survey, its highest level since April 1995. And output expectations for the next three months were their strongest since April 1997.

Additional reporting by Matt Falloon and David Milliken; Editing by Patrick Graham and Susan Fenton

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