Factory activity suffers setback but home loan approvals inch higher

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THE MANUFACTURING sector has suffered a slowdown while mortgage lending picked up, according to a mixed bag of figures yesterday that was reminiscent of the two-speed economy that has traditionally bedevilled the UK economy.

Factory activity grew at its slowest pace for two and a half years last month, the Chartered Institute of Purchasing and Supply said yesterday.

The slowdown, which had not been expected in the City, brings the survey more in line with official figures that show the sector fell into recession in the second half of last year.

The drop in the Cips index to 51.8 from 53.3 left manufacturing above the 50 threshold that separates expansion from contraction, but was the slowest growth since July 2003. Cips said the slowdown was driven by the first drop in new export orders for five months. Roy Ayliffe, its director of professional practice, said: "Export orders were hit by the strength of sterling, particularly against the dollar."

Analysts said there was growing evidence the recovery in manufacturing, which accounts for 17 per cent of the economy, was running out of steam.

Meanwhile, figures from the Bank of England showed an upturn in mortgage lending and in the number of new approvals for loans. Net mortgage lending rose pounds 7.1bn in December, more than the pounds 6.4bn rise in the previous month but still down by 13 per cent on a year earlier.

The number of loans approved for house purchase - loans agreed but not yet made - rose to 83,000 from November's 77,000 but a fraction of the 132,000 in December 2003. "The modest rise in mortgage approvals and lending reinforces the impression the housing market is slowing steadily rather than sharply," Howard Archer, at Global Insight, said.

It is the latest batch of mixed data after Monday's figures showing a fall in retail sales but a sharp rise in consumer confidence. Malcolm Barr, at JP Morgan Chase, said: "Another data set with one step forward and one step back. We are comfortable with the view that rates are on hold but there is little doubt the message from manufacturing is the more powerful."