U.K. Economic Growth Forecasts Cut by EEF as Manufacturers See Stagnation

The Engineering Employers Federation cut its U.K. growth forecasts and said manufacturers expect the industry to stagnate in the first quarter.

The EEF sees gross domestic product rising 1 percent in 2012 instead of the 2 percent forecast in September, with factory output growing 0.9 percent rather than 2.2 percent, Chief Economist Lee Hopley told reporters at a briefing in London on Dec. 2. A manufacturing survey published today showed companies predict flat output and a “modest contraction” in orders in the first quarter, Hopley said.

Chancellor of the Exchequer George Osborne said last week British economic growth will be slower this year and next than previously forecast as the euro-area sovereign debt crisis undermines demand in the biggest market for U.K. exports. Manufacturing weakened from China to Europe last month as the turmoil darkened the outlook for the global economy.

“Given all the headwinds that we’re seeing and all the enormous risks to growth stability in the euro zone and the financial sector, we’ve had to downgrade our growth forecasts,” Hopley said. “We’ve got more question marks over the start of 2012 than we did. That’s inevitable looking at what’s happening in key markets and the degree of uncertainty and that just seems to be escalating on a weekly basis.”

China’s manufacturing contracted in November for the first time since February 2009, while in Britain and the 17-nation euro area the sector shrank at the fastest pace in about 2 1/2 years, purchasing managers reports last week showed.

Stagnation

Manufacturers were evenly divided on whether output would rise or fall in the first three months of 2012, indicating stagnation, Hopley said. The balance saying sales rose in the current quarter exceeded those reporting declines by 12 percentage points, down from 27 points in the three months through September.

Measures of domestic and export orders both fell, with manufacturers predicting a further decline in the first quarter, Hopley said. The survey questioned 453 companies Nov. 3-23.

Bank of England policy makers raised the target for asset purchases by 75 billion pounds ($118 billion) to 275 billion pounds in October as the economic outlook deteriorated. Some officials have said they may need to expand stimulus further.

“I think it’s more than likely the bank would proceed on that basis,” Hopley said, when asked if she thought officials may extend the target in February when the current round of purchases ends.

A report by Lloyds Bank Corporate Markets today showed a U.K. job-security index rose 2 points to minus 21. Thirteen percent of employed respondents said they felt there had been an improvement in job security, while 34 percent said there had been a deterioration, the unit of Lloyds Banking Group Plc reported in an e-mailed survey.

A separate index of new jobs published today by Reed.co.uk, Britain’s largest recruitment website, rose to 133 in November from 129 in October. The gauge was at 121 in September. Reed’s gauge of salaries gained 1 point to 98.

To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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