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UK factories pull out of slump, outlook still uncertain

[LONDON] A slump at British factories has bottomed out but a group representing the sector also said it was cutting its growth forecasts for 2016 and warned of the potential drag from the country's European Union referendum.

EEF said its latest quarterly balances of new orders and output improved after sinking to a six-year low in late 2015 although they remained in negative territory. It also said factories expected a further pickup in the coming three months.

"The slide is bottoming out, but manufacturing is still in negative territory and faces a precarious climb back up amidst a storm of real uncertainty," EEF chief economist Lee Hopley said.

The survey offered a sign that a slowdown in the economy might be not as bad as some other measures have suggested.

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Last week, purchasing managing indexes for Britain's manufacturing, construction and services sectors pointed to a slowdown in quarterly economic growth to 0.3 per cent from 0.5 per cent in late 2015.

The Bank of England has said it is prepared to cut interest rates or expand its bond-buying programme if needed to offset a hit to British growth.

The EEF cut its forecast for manufacturing growth in 2016 to 0.6 per cent from a previous forecast of 0.8 per cent. It also said overall economic growth would be 1.9 per cent, down from a previous forecast of 2.1 per cent.

The group said the approach of Britain's EU membership referendum could add to caution among factory managers.

Britain's factories struggled through much of last year with a slowdown in the global economy and firms with links to the oil industry have also felt the hit of the plunge in oil prices.

By contrast, consumer spending has helped drive the economy since it began a sustained recovery in 2013 and a separate survey published on Monday showed households increased their spending last month, albeit more slowly than in January.

Visa Europe's UK Consumer Spending Index pointed to a 2.2 per cent increase in spending in February compared with the same month last year, down from a 2.5 per cent rise in January.

REUTERS

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