A U.K. index of factory orders fell and optimism plunged to the lowest level in 2 1/2 years as manufacturers predicted “significantly” weaker demand over the next three months.
The orders gauge declined to minus 18 in October, its weakest reading in a year, from minus 9 the previous month, the Confederation of British Industry said in a report in London today. A quarterly measure of sentiment fell to minus 30, the lowest since April 2009, from minus 16 in July.
Slowing global growth and an escalation of the European debt crisis prompted the Bank of England to expand stimulus this month to prevent the U.K. economy from falling back into recession. British manufacturing will shrink by 0.6 percent this quarter after growing 0.2 percent in the previous three months, according to the CBI, Britain’s biggest business lobby group.
“Sentiment deteriorated sharply and firms expect sizable falls in activity over the next three months,” Ian McCafferty, CBI chief economic adviser, said in a statement. “Confidence among manufacturers is also being sapped by uncertainty over developments in the euro zone, leading to broader concerns over global growth.”
A monthly gauge of export orders fell to minus 14 in October, the lowest in a year, from minus 12 in September, the CBI said.
The pound was little changed against the dollar after the report was published. It traded at $1.5995 as of 11:14 a.m. in London, from $1.6001 yesterday.
The report also showed a quarterly measure of order expectations for the next three months slid to minus 10, the weakest since July 2009, from zero. A gauge of overseas order expectations also dropped. Price pressures have “moderated considerably” as companies kept domestic prices unchanged and cut export prices for the first time since 2009, the CBI said.
“In line with the softening in activity, more firms are now working below full capacity” and “plans for capital spending in the year ahead remain negative.” the CBI said.
Renishaw Plc, a U.K. maker of precision machine tools, said on Oct. 13 that revenue in the three months ended Sept. 30 increased less than predicted and the company was “monitoring” its costs and future recruitment strategy in light of “near- term challenges.”
The U.K. economy has barely grown over the past year and unemployment rose to a 15-year high of 8.1 percent in the three months through August. Two years after the recession ended, economic output is 4.4 percent below its peak level in early 2008, making this the weakest recovery for almost a century.
Bank of England policy makers expanded their emergency bond-buying program by 75 billion pounds ($120 billion) to 275 billion pounds on Oct. 6. They also left the benchmark interest rate at a record low of 0.5 percent.
The CBI surveyed 446 companies between Sept. 26 and Oct. 12 for the report.
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