CBI warns of more gloom Michael Glackin Business News Editor
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PROSPECTS for UK manufacturing are worsening according to the latest snapshot of the economy from the Confederation of British Industry.
The CBI said manufacturers’ current order books and their expectations of future output were at their lowest for two-and-a-half years, and reiterated its call for the Bank of England to cut interest rates further to kick start an upturn in the beleaguered sector’s fortunes.
CBI director general, Digby Jones, said: "Firms are continuing to do all they can by raising productivity, but a further interest
rate cut will be needed.
"We would expect to see interest rates at 4.75 per cent by the end of the year."
He added: "With inflation set to stay below the government’s own target there is no obstacle to a cut."
However, following this month’s shock quarter percentage point cut, which left rates at five per cent, it is extremely unlikely the Bank will implement any further reductions in the coming months barring further disasters in the US.
Despite warning that manufacturers will struggle to recover this year, the CBI said it still expects the sector to start to emerge from recession later before Christmas and expand 0.6 per cent in 2002.
But squeezed by feeble global demand and the high pound, manufacturers expect things to get worse before they improve. The output expectations balance plunged to -13, its worst reading since December 1998, from +3 in July.
HSBC economist John Butler added: "The key message from the survey is that the prospects for the manufacturing sector continue to worsen. Moreover, with the good start to the third quarter for retail sales, the tug-of-war between the two-speed economy lives on."
Meanwhile the latest government figures from Germany, showed growth ground to a complete halt during the second quarter, with gross domestic product unchanged from the previous quarter’s meagre 0.4 per cent increase.
Year on year GDP in Europe’s largest economy rose 0.6 per cent in the three months to June, its slowest rate of increase in more than four years.
The gloomy, though not unexpected news, will undermine the surprising increase in business confidence recorded in the respected Ifo index earlier this week, and will lead to increased demands within Germany for a cut in eurozone interest rates when the European Central Bank meets at the end of this month.
The German finance ministry said: "The gross domestic product estimates show without a doubt that the risks for the economy haven’t diminished."