Manufacturers boost recovery hopes

Hopes for the economic recovery were boosted today as a business survey showed an unexpected improvement in orders and confidence in the manufacturing sector.

A balance of 7% of manufacturers told the CBI this month that they expect to increase their volume of output in the next three months, compared to a balance of 3% in May who expected business to decline.

The flow of orders also saw an improvement in June, the CBI said, with an increase in the number of businesses reporting order levels above normal, including a surprising improvement in export orders.

The wider economy entered a double-dip recession in the first quarter of 2012 and recent signs have suggested the country may struggle to return to the growth in the second quarter.

Ian McCafferty, CBI chief economic adviser, said: "Despite facing continued instability within the eurozone, UK manufacturers have seen a modest rebound in orders from both their domestic and export markets."

The survey presented further evidence that the economic climate is weighing on companies' pricing power as expectations for output price inflation weakened.

Gross domestic product (GDP) shrank by 0.2% in the first three months of 2012, following a 0.3% contraction in the final quarter of last year.

A slide in construction output and a stagnant services sector were blamed for the dip, which had not been expected by experts after a run of strong PMI manufacturing surveys.

Economists have already raised concerns about the second quarter, as additional bank holidays for the Queen's Diamond Jubilee are expected to knock growth.

Howard Archer, chief UK and European economist at IHS Global Insight, said the data offered "glimmers of hope for the UK economy".

But he warned: "There is still a very real danger that the economy will suffer further contraction in the second quarter, especially as it is handicapped by the extra day's public holiday resulting from the Queen's Diamond Jubilee. And the outlook remains highly uncertain and problematical."

Mr Archer said a further boost to the Bank of England's quantitative easing programme next month is still likely.

Pressure is mounting on Bank of England policymakers to bolster Britain's prospects following the return to recession in the first quarter of the year and the mounting debt crisis on the continent.

Rate-setters held off from injecting more cash into the economy through QE earlier this month, but the consensus among economists predicts another multibillion-pound injection in July.

PA