Economy Under Pressure Despite Recession Exit

The first snapshot of UK economic activity at the start of the fourth quarter paints a worrying picture for manufacturing despite the exit from recession.

The latest Markit/CIPS Purchasing Managers' Index for the manufacturing sector suggests a deepening contraction in activity during October - the first month of the final quarter.

The survey found that companies received fewer orders and costs rose at a faster pace, with the index falling to 47.5. A reading above 50 would show growth. It was the sixth consecutive monthly contraction in activity.

The finding throws open again the debate about whether the Bank of England will opt to extend its policy of quantitative easing beyond the current total of £375bn to boost money supply further in the economy.

That was thought unlikely to happen in November after the first estimate of UK GDP for the third quarter emerged last week.

Then, the Office for National Statistics (ONS) declared that the UK had left behind the longest double-dip recession since the end of the Second World War, measuring growth across the economy for the period at 1%.

The ONS had painted a largely rosy picture for industrial production and the powerhouse service sector but found that construction output dipped 2.5%.

In its latest economic forecast, the business lobby group the CBI backtracked on its last estimate that the UK economy would contract 0.3% during 2012.

It is now expecting a flat performance with growth remaining "relatively lacklustre" for the next two years.

Its figure for 2013 was also revised higher to 1.4%, up from 1.2%, and up to 2% in 2014.

The CBI said it was worried that the continued uncertainty in the eurozone would knock confidence for some time to come.

CBI director-general John Cridland said: "Despite the better than expected third quarter performance, the UK economy has bumped along the bottom this year, with overall growth fairly flat.

"While we expect underlying momentum to pick up modestly next year and to be slightly stronger in 2014, the pace will remain relatively lacklustre."

The CBI warned that risks to the economic outlook remain on the downside with the threat of the eurozone crisis and inflation now likely to be higher than previously forecast through 2013, as a result of rises to utility bills.