Figures threaten return to recession

Manufacturers are dragging the economy back into recession after the biggest blow to the sector since 2009, an industry survey has warned.

The Chartered Institute of Purchasing (Cips) and Supply/Markit activity index, where a score below 50 signals contraction, registered 49.6 last month, showing that the "march of the makers" promoted by the Chancellor, George Osborne, is still stuck in reverse gear.

While December's survey was stronger than the worst fears of City economists, even steeper falls in October and November left manufacturers suffering their worst quarter since the depths of recession in April-June 2009.

Andrew Goodwin, a senior economic adviser to the Ernst & Young Item Club, warned: "It looks as if manufacturing was a sizeable drag on growth. We estimate that gross domestic product is likely to have contracted by around 0.2 per cent and expect the economy to fall into technical recession in the first quarter of this year."

The Bank of England predicts "broadly flat" growth in the first half of 2012 as Europe's debt crisis hits home and is widely expected to step up its quantitative easing programme to pump more cash into the economy next month.

But there were also glimmers of encouragement after easing raw materials costs and the fastest rise in new export orders since April.

Manufacturers reported a pick-up in new orders from Germany, eastern Europe and China, although exports are well below the record levels seen last year. The

Cips' chief executive David Noble said Europe, which accounts for nearly half of the UK's export market, remained key this year.