Small manufacturers storm ahead but Britain faces gloomy consumer outlook

 
Julian Harris
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SIGNS of economic rebalancing in the UK emerged today, as separate reports showed strong manufacturing contrasting with further gloom over consumer spending.

Orders at the UK’s small and medium sized factories grew at their fastest rate for 16 years in the three months to April, according to the Confederation of British Industry (CBI).

A positive balance of 23 per cent of surveyed factories showed a jump in export orders, while employment rose at its fastest rate since January 1995.

“Headcount has increased for the third consecutive quarter as firms try to keep up with demand, and output is expected to rise again,” said Lucy Armstrong of the CBI.

However, the boost from manufacturing will not be sufficient to temper the UK’s weak consumer outlook, according to Deloitte’s latest economic review, released today.

“I think that this year will see falling real earnings, falling real house prices and rising unemployment,” said Deloitte’s adviser Roger Bootle.

“I expect spending to drop by one per cent this year and by a further 0.5 per cent or so in 2012,” Bootle added.

Inflation could “possibly” exceed five per cent, Deloitte said. A positive balance of 52 per cent of small and medium sized factories expect unit costs to increase sharply again in the next three months, the CBI survey showed, with increases expected in both domestic and export prices.