New fears of 'double dip' recession

Worrying signs that economic recovery may prove even more fragile than inititally feared – with the real possibility of a "double dip" recession – emerged with the release yesterday of the latest survey of business confidence in the manufacturing industry.

The Chartered Institute of Purchasing and Supply said that while new orders, production and employment were still expected to grow in the coming months, the pace of increase was slowing, with the headline figure for business sentiment falling from 54 in October to 51.8 in November. That was markedly lower than the consensus of analysts' forecasts, although any figure above 50 still represents growth.

Manufacturing output, comprising about 15 per cent of Britain's economy, rose for the sixth consecutive month in November as market conditions continued to improve.

Export orders also edged higher in a sign that the 25 per cent deprecation in sterling over the past two years was starting to show benefits. The outlook for employment was also brighter, with companies of every size reporting growth in their workforces. However, new orders from domestic markets fell back, dragging the headline index figure lower.

David Noble, chief executive of the CIPS, said: "With new orders expanding at a slower rate than in October, there are already signs that the rebound in growth may be nearing its peak, leaving question marks over the longer term outlook and the possibility of a double-dip recession.

"Positively, however, export demand grew at its fastest pace in almost two years, as improving market conditions and the ongoing weakness of sterling bolstered demand from Europe, US and Asia."

Despite the upbeat remarks, some economist were disappointed with the survey results. Malcolm Barr, of JP Morgan, said: "November's data still suggest that the [manufacturing] sector is moving toward stabilisation or a little better, but the monthly ups and downs still leave one unconvinced that a turn toward sustained significant growth in output is in train."

British industry wants for help from the Chancellor, Alistair Darling, in his pre-Budget report a week from today. The Engineering Employers' Federation warned this week: "Even as we start to see clearer signs of an upturn, companies will remain vulnerable to higher costs or reductions in credit."