Factory slowdown hits economy

Factory orders have slowed more than expected in recent weeks, casting a shadow over the pace of recovery in Britain’s manufacturing sector.

Katja Hall: Political instability poses a risk to recovery

The latest CBI industrial trends survey, which polled almost 500 businesses, found that just 2 per cent had seen an increase in orders, or an above normal level of orders this month, compared with 11 per cent in June.

Adding to the economic reality check yesterday, official figures showed Britain’s public finances had suffered a bigger-than-expected deficit in June, continuing a weak start to the tax year.

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Deficit reduction is the central plank of the coalition government’s economic policy and news that it failed to reduce public borrowing during the first three months of the fiscal year will present a fresh headache for Chancellor George Osborne.

Sam Hill, an economist with RBC, noted that government spending and receipts were often volatile and officials would probably be hoping for a 
bigger than usual boost to income in July when revenues are often higher.

“Otherwise, at that point questions on the credibility of the target may just start to become slightly more frequent, even if they will remain far from deafening,” he said.

The CBI survey also found that export orders were flat, raising fears that the strength of sterling is jeopardising the chances of a rebalancing of the consumer-led recovery.

Katja Hall, the CBI deputy director-general, said industry was performing well, but there were still risks to the recovery. “It is not all plain sailing,” she said. “[Risks] include increasing international political instability.”