U.K. Manufacturing Index Rises, Adding to Optimism

By Brian Swint

May 1 (Bloomberg) -- U.K. manufacturing contracted at the slowest pace in eight months in April, adding to evidence that the country’s deepest recession in a generation will ease later this year.

A gauge based on a survey of factories climbed to 42.9 from a revised 39.5 the previous month, the Chartered Institute of Purchasing and Supply and Markit Economics said. Economists predicted 40, according to the median of 29 forecasts in a Bloomberg News survey. A separate Bank of England report showed mortgage approvals rose less than forecast in March.

The British economy is showing some signs of pulling out of its downward spiral after contracting at the fastest pace since 1979 in the first quarter. Consumer confidence rose to the highest in a year in April and the pace of house-price declines is slowing. At the same time, another report today showed that insolvencies jumped in the first three months of the year.

“The data has again provided some positive surprises,” said James Knightley, an economist at ING Financial Markets in London. “There are still tough questions regarding how sustainable this turn in the data is.”

Knightley says the manufacturing data is consistent with the annual rate of economic contraction slowing to 1 percent from 4.1 percent at present. A PMI reading of below 50 signals contraction.

Mortgage Approvals

The Bank of England said mortgage approvals rose to 39,230 in March from 37,716 the previous month. While that’s the highest in 10 months, it’s below the median forecast of 40,000 in a Bloomberg survey.

Personal insolvencies in England and Wales climbed 1.6 percent in the first quarter from the fourth and company liquidations rose 7.1 percent, the government’s Insolvency Service said today. The recession is forcing more Britons to seek protection from creditors after consumer debt rose to a record 1.5 trillion pounds ($2.2 trillion).

Overall net lending to consumers rose by 885 million pounds in March, the least since records began in 1993, the U.K. central bank said today.

House prices still declined last month by 0.4 percent, less than the 1.2 percent drop forecast by economists, after a surprise increase in March, a report by Nationwide showed yesterday. Consumer confidence is improving, climbing to the highest in a year in April, GfK NOP says.

BOE Decision

The Bank of England, which makes its next interest-rate decision on May 7, in March cut the benchmark interest rate to a record low of 0.5 percent and started buying assets with newly created money to stimulate the economy. The government and the central bank say the U.K. may return to growth around the end of this year.

“Because the effects of quantitative easing are uncertain, they’ll want to look at the effects before committing to extending the scale of purchases,” said Philip Shaw, chief economist at Investec Securities in London. “We’re looking squarely at no change in the interest rate next week, but it’s good to be talking about some relatively good news for a change.”

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