A major British manufacturing survey unexpectedly weakened in November and house price data confirmed an earlier rebound in house prices had slowed, raising questions about the strength of the economic recovery.
Most economists still expect Britain's economy will return to growth in the last three months of the year after its longest recession in at least 50 years, but Tuesday's figures imply any spurt in growth — as shown in September's official industrial output data — is likely to be short-lived.
"The recovery is clearly struggling to maintain momentum, suggesting that growth next year will be pretty modest," said Vicky Redwood of Capital Economics.
Britain must hold an election by June next year, and a bounce for growth would strengthen the position of Prime Minister Gordon Brown's Labour Party, who trail the opposition Conservatives in the polls.
Treasury sources have told Reuters that the government is likely to forecast growth of 1.0-1.5 percent in 2010 in a pre-Budget report due next week, the same as April's Budget forecasts.
The Bank of England also expects a solid recovery next year, though its timing is uncertain and depends on the impact of its 200 billion pound quantitative easing policy to pump additional stimulus into the economy.
Manufacturing activity fell last month from a near-two-year high set in October, according to the monthly PMI survey from the Chartered Institute of Purchasing and Supply and Markit.
The headline index dropped to 51.8 from 53.4 and new orders fell sharply to 53.0 from 58.0, though both measures remained above the 50-level that separates growth from contraction, where the main index has been for four of the past five months.
"It was weaker than we anticipated but then there was a surge in October, so we weren't overly surprised to get a correction in November," said Peter Dixon, economist at Commerzbank.
"It will be a long haul for the manufacturing sector and probably for the economy as a whole."
The figures point to a 0.6 percent rise in manufacturing output in the three months to November, but also that output has possibly peaked, Markit estimated.
"We may be nearing a growth peak, as the new orders to inventory ratio fell sharply," Markit economist Rob Dobson said.
The Office for National Statistics said manufacturing output grew 1.7 percent in September — its fastest monthly rate since July 2002 — after factories reopened from a longer-than-usual August break.
SLOWING HOUSE PRICE GROWTH
Growth in house prices has also slowed since the summer, the monthly survey from mortgage lender Nationwide confirmed. House prices rose by 0.5 percent in November, unchanged from October and well below monthly growth rates of 1 percent or higher between May and September.
The price of an average home is now 2.7 percent higher than November last year at 162,764 pounds, taking prices back to levels from early 2006 and up around 10 percent from the five-year low set in February.
"The reduced month-on-month increases in both November and October suggests that the rally is beginning to get heavy legged," said Howard Archer, economist at IHS Global Insight. "This fuels our suspicion that house prices are likely to suffer a modest relapse in 2010."
The Bank of England has said that it expects the domestic recovery to be driven by export demand, a marked contrast to the consumer credit boom that drove growth before the financial crisis and a reflection of sterling's weakness.
Data on Monday showed GfK NOP consumer confidence slipped for the first time since January and also that British consumers were paying back short-term debt at a record pace — reducing the spare cash they had for spending.
Tuesday's PMI survey had good news from exports with currency weakness increasing new orders from mainland Europe, the United States and Asia and helping take this component to its highest level in almost two years.
Conversely, the cost rose for metals, oil and plastics — most of which are imported — and British manufacturers raised prices for the first time in 10 months to protect margins in the face of these higher raw material costs.
Manufacturing employment fell for a 19th successive month, albeit at the slowest pace since May 2008. Some firms started to rehire because of better sales and rising production.
