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UK manufacturing outlook darkens, retail sales slip

Published 19/11/2015, 13:57
© Reuters. A worker operates machinery at the Closed Loop recycling plant in Dagenham east London

By Andy Bruce and William Schomberg

LONDON (Reuters) - The outlook for British manufacturers darkened on Thursday as a survey showed they expect their output to fall, the first such prediction in three years, while official data marked a slight decline in retail sales in October.

A gauge of expectations for manufacturing output over the next three months worsened to -6 from +5 in October, according to the Confederation of British Industry (CBI), the first forecast of a fall since November 2012.

Manufacturing, which accounts for about a tenth of the economy, has dragged on an otherwise solid economic recovery largely fuelled by consumers, who have been buoyed by improving wage growth and record-low interest rates.

While retail sales volumes dropped by a slightly bigger-than-forecast 0.6 percent on the month, the decline was mostly expected and followed a surge in September boosted by sales during the Rugby World Cup.

Policymakers want to see a more balanced economic recovery that relies increasingly on manufacturing and exports rather than services and domestic demand.

"The surveys show that the recovery is consumer-driven at the minute, manufacturing is still struggling," said Samuel Tombs, economist at research company Pantheon Macroeconomics.

Retail sales volumes were hurt by the biggest drop in food store sales since May 2014, although they were still 3.8 percent higher than a year ago and registered solid growth of 0.9 percent in the three months to October.

Tombs added that although retail sales were likely to remain strong overall heading into the Christmas shopping season, he expected the government's fiscal squeeze to pressure consumer finances next year, denting sales.

Next week, finance minister George Osborne presents the government's spending review, which will outline where the cuts will fall as he tries to close Britain's budget deficit - one of the largest among major economies.

The CBI said the total orders balance of its monthly industrial trends survey rose to -11 in the three months to November, from -18 in October, which had been the weakest in more than two years.

November's reading was roughly in line with a forecast in a Reuters poll of -10.

Export orders weakened a touch to -29, their lowest in nearly three years.

© Reuters. A worker operates machinery at the Closed Loop recycling plant in Dagenham east London

The weak outlook was broad-based and the largest downward drivers of expectations were the chemicals, mechanical engineering and metal manufacture sectors.

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