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Cameron Urged by EEF to Step Up Aid as U.K. Economy Shrinks

Prime Minister David Cameron’s government should enhance its growth strategy as the British economy heads for its first full-year contraction since 2009, the Engineering Employers’ Federation said.

Gross domestic product will fall 0.2 this year and rise 1.4 percent in 2013, the London-based manufacturing lobby group said in a report published today. It previously estimated growth of 0.3 percent and 1.8 percent respectively. A quarterly survey showed factory output and orders dropped to their lowest levels in almost three years, the EEF said.

Bank of England policy makers will maintain their quantitative-easing target this week as the euro-area debt crisis and the largest budget reductions since World War II undermine confidence, economists say. Calls for Chancellor of the Exchequer George Osborne to do more to spur the economy intensified after the recession deepened in the second quarter.

“What our members are looking for is something from the government on growth that will match its determination on deficit reduction,” EEF Chief Economist Lee Hopley said in an interview on Aug. 31. Still, “there’s not a lot the government can do on the external factors bearing down on confidence.”

The Bank of England last month abandoned its forecast of growth this year and said the outlook is “unusually uncertain” after the economy shrank 0.5 percent in the three months through June. Gauges of manufacturing and services fell in July, indicating a weak start to the third quarter.

The Confederation of British Industry and the British Chambers of Commerce both urged the government to act on growth last week as they forecast the economy will contract this year.

Manufacturing Declines

Of 369 manufacturers questioned between Aug. 1 and Aug. 22, the number saying sales rose in the past three months exceeded those reporting declines by 4 percentage points, the weakest reading in three years, the EEF and accountancy company BDO LLP said in the quarterly survey. That compares with 20 points in the last survey published in June.

A gauge of domestic orders fell 15 points to minus 6, while a measure of export orders dropped 9 points to 2.

Manufacturing output will shrink 1.5 percent this year before growing by a similar amount in 2013, the EEF said. The lobby group previously estimated growth of 0.1 percent and 2.2 percent respectively, Hopley said.

A separate survey by Lloyds Bank showed that for the first time in three months more U.K. companies were optimistic than pessimistic about the economic outlook. The index of sentiment rose to 10 in August from minus 8 in July, the third consecutive monthly increase, the unit of Lloyds Banking Group Plc said.

The upturn is “still at a low level by historical standards and suggests lackluster underlying activity into the end of the year,” it said. The bank surveyed 300 companies with sales exceeding 1 million pounds ($1.59 million) between Aug. 6 and Aug. 17.

The Bank of England, which will complete a 50 billion-pound round of bond purchases in November, will maintain its QE target at 375 billion pounds, according to 38 out of 39 economists in a Bloomberg News survey. Policy makers will also leave their benchmark interest rate at a record-low 0.5 percent, all 51 economists said in a separate poll. The decisions will be announced at noon on Sept. 6 in London.

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