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Disappointing UK Manufacturing Fuels Recovery Fears

Thursday, 2 Jun 2011 | 3:28 AM ET

The latest numbers for UK manufacturing showed a continued weakening, prompting concerns that the economic recovery is likely to be more protracted than forecasts have suggested.

Sharon Lorimer

The May manufacturing purchasing managers index came in at 52.1 against 54.4 in April, the lowest since September 2009. The reading was blamed on a weaker domestic market, the slowest rate of growth in export orders in eight months and extra public holidays.

Ruth Lea, economic adviser at Arbuthnot Banking Group, was not surprised by the weaker figures.

“Very disappointing but not as surprising as some people are making out. They are getting to the point where it is almost a contraction. We are looking to manufacturing, particularly manufacturing exports to really drive GDP (gross domestic product) growth forward so I think for those reasons this is doubly disappointing," she said.

"The great wedding (royal wedding) did cheer us up and helped consumer confidence so there is probably a distortion in the figure but what the figures are telling us if you take out all the lumps and bumps is that the economy is not growing quickly," Lea said. "We know that GDP was up 0.5 percent in the first quarter offset fall in the fourth quarter I basically think the economy is flat-lining at the moment."

She added that monetary policy in the UK was likely to be even more cautionary on the back of these numbers.

“The pound has gone down on this and people will be revising their expectations of when interest rates will be starting to go up," she said, adding she did not thing the Bank of England, and particularly governor Mervyn King were in no hurry to raise interest rates.

"I reckon we are going to go into the third quarter maybe even fourth before we see the first interest rate rise. These numbers are not good," she said.

She dismissed suggestions that export-led growth could boost the UK economy.

Currently the UK economy is dominated by consumer spending and the public sector, which together make up more than 85 percent of the economy.

Western economies as a whole were not looking that bright, Lea said. "Even if you look at the better performing ones in the euro zone like Germany, there are indications there that despite growing very well in the first quarter it is beginning to slow down as well, so all in all it is not a very optimistic picture.”