U.K. Economy Will Struggle Even as Confidence Gains

Britain’s economy will struggle to gather momentum until the second half of the year even as business sentiment and hiring intentions improve, according to a survey by BDO LLP.

A confidence index rose to 92.2 in March from 90.6 in February and a hiring gauge increased to 96 from 95, the accountancy firm said in a report in London today. Still, its output index, at 93, remains below the 95 level that points to positive growth one quarter ahead. BDO said “robust business conditions will remain elusive.”

Britain’s economy shrank in the fourth quarter and Markit Economics said last week that its industry surveys point to growth of a “mere” 0.1 percent in the three months through March. Industrial production probably rose 0.4 percent in February, reversing just a third of its slump in January, economists said before data due tomorrow.

“Economic conditions will continue to be tough until at least mid-2013,” BDO said. “Weak demand from the U.K.’s key euro-zone export market, fiscal austerity and declining real wages, which will limit consumer spending power, suggest economic growth will be lackluster over the first half.”

The drop in industrial production in January was partly due to the shutdown of a North Sea oilfield and was led by a 1.5 percent slump in manufacturing. Factory output probably also increased 0.4 percent in February, according to the median of 29 estimates in a Bloomberg News survey. The Office for National Statistics will publish the data, as well as the trade balance for February, at 9:30 a.m. tomorrow.

The BDO report showed that sentiment among manufacturers fell to 88.2 in March from 94.5 in February. Services confidence improved to 93.2 from 89.6. An index of inflation rose to the highest since August.

Separately today, Lloyds Bank said an index of Britons’ sentiment toward job security was unchanged at minus 15 in March. A gauge of their assessment of employment prospects slipped 1 point to minus 45, it said.

To contact the reporter on this story: Fergal O’Brien in London at fobrien@bloomberg.net

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

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