July 1 (Bloomberg) -- A U.K. index of manufacturing rose more than economists forecast in June to show the smallest contraction in more than a year, evidence that the recession is easing.

A gauge based on a survey of factories climbed to 47, the highest since May 2008, from 45.4, the Chartered Institute of Purchasing and Supply and Markit Economics said today in London. Economists predicted 46.4, the median of 29 forecasts in a Bloomberg News survey shows. Readings below 50 show contraction.

The U.K. economy may be past the worst of the slump after the biggest contraction in a half century during the first quarter. Former Bank of England Deputy Governor Rachel Lomax said today that the economy is “showing some signs of stabilizing” after the central bank cut interest rates and started printing money to revive growth.

“After months of doom and gloom, there are some signs of relief for the U.K. manufacturing sector,” said David Noble, chief executive officer at CIPS, in a statement. “The sector may finally be coming out of recession.”

Imagination Technologies Group Plc, the U.K. maker of Pure digital radios, may increase chip shipments by 50 percent to 80 percent this fiscal year as customers sell more smartphones, Chief Executive Officer Hossein Yassaie said June 24.

Factory Profitability

The recession is still hurting manufacturers’ profitability. The net rate of return was 6.8 percent in the first quarter, the lowest since 1992, the statistics office said today in a separate report. For all private non-financial corporations, the rate was 12.3 percent.

Unemployment is rising after the economy shrank 2.4 percent in the first three months of the year. Tata Motors Ltd., the Indian truckmaker that owns Jaguar and Land Rover, posted its first annual loss in at least seven years on June 26 after sales at the luxury units plunged amid the global recession.

The Bank of England last month kept the benchmark interest rate at record low of 0.5 percent and maintained the 125-billion pound ($205 billion) program to bolster the economy by buying bonds with newly created money. The next interest-rate decision is July 9.

To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net.

Last Updated: July 1, 2009 07:49 EDT