Signs suggest the worst of the British recession is over

Cips index of industrial confidence improves – but still indicates a contraction

The worst of the recession may be behind the UK economy, according to the latest readings.

Improvements in business sentiment and mortgage approvals, plus a fall back in corporate insolvencies, were taken by economists to be slight signs that the large falls in GDP seen over the past six months may be over – the economy will continue to shrink, but at a slower rate. And few experts believe the economy will stage anything but a feeble recovery through this year and next.

The brightest piece of news came in manufacturing. The last quarter of 2008 and the first months of 2009 witnessed a severe "inventory recession" – an extreme adjustment in output as retailers reacted to falling demand by selling from stock rather than placing new factory orders, leading to a collapse in production, especially in the car industry. That phase of the downturn may be drawing to a close.

The Chartered Institute of Purchasing and Supply's index of industrial confidence improved again last month, with a reading of 42.9, against 39.5 in March and a nadir of 34.9 in November.

In the Cips index, a figure of below 50 indicates a contraction, and one above 50 an expansion, so the trend is still negative – but on a gentler slope.

The near-30 per cent depreciation of sterling since the summer of 2007 seems to be feeding through to exports, but Roy Ayliffe, a director at Cips, cautioned: "We are still far away from a turnaround, and the industry is firmly embedded in the trenches of the recession. Tough trading conditions with ongoing cuts continue to bleed UK firms dry: as a result, over a third of firms were forced to streamline staff as they continue to operate on very tight margins."

Indeed, personal insolvencies rose last month, a reflection of the rising trend of unemployment and negative equity facing homeowners, even as general conditions show tentative signs of improvement. Some 30,253 people went into bankruptcy or entered into an individual voluntary arrangement in the first months of 2009, an increase of 22.9 per cent on last year, and a record for any quarter since records began. The average debt owed by someone in an IVA was £50,020.

However, the number of corporate failures fell back. A total of 1,783 firms were taken into receivership or administration between January and March, 27 per cent fewer than in the last quarter of 2008, though up about 50 per cent on 2008.

Again, caveats were added to apparently good news. Geoff Carton-Kelly, a partner at the accountants Baker Tilly, said: "We have seen banks, Revenue & Customs and landlords acting less aggressively and appearing more willing to support struggling businesses. Conversely, it could well mean that insolvencies will rise again as problems being deferred will come to rear their ugly heads later."

There were also some signs of life in the property market. The Bank of England reported a marginal improvement in new mortgage approvals, with 39,230 fresh loans granted in March – 1,293 more than in February and the highest in 10 months. Yet they remain at 60 per cent below pre-credit crunch levels, and analysts at Capital Economics say they "remain consistent with further falls in house prices of around 15 per cent per annum".

Simon Rubinsohn, the chief economist at the Royal Institution of Chartered Surveyors, added: "A key issue remains accessibility to the market for first-time buyers, who are continuing to find the bulk of mortgages on offer only providing maximum loan to values of around 75 per cent."

Attention now turns to the Bank of England's Monetary Policy Committee, which meets next week. It is widely expected to keep rates at their historic low of 0.5 per cent and to complete the initial, £75bn, programme of "quantitative easing".

Colin Ellis of Daiwa Securities said: "The May decision seems settled. The big question is what happens in June? Some have called for the Bank to use more of the £150bn allocation it has been given by the Government. Given the downside risks, it would be easy to justify further purchases. But we are not sure that the Bank will necessarily want to, at least not immediately."