WRAPUP 1-UK data paints gloomy picture before budget statement

Tue Dec 4, 2012 7:18am EST

* Gloomy data ahead of UK budget statement
    * UK construction activity falls
    * Retail sales not as good as hoped
    * Growth forecasts revised down by BCC

    By Jonathan Cable
    LONDON, Dec 4 (Reuters) - Britain's economic recovery
remains precarious, data on Tuesday showed, with construction
activity falling and retail sales weaker than expected - a blow
to the government the day before a budget statement.
    The weak data was accompanied by a report from the British
Chambers of Commerce that said economic growth in the next two
years will be slower than previously thought.
    "The data support the evidence we've had that the fourth
quarter is shaping up to be pretty weak, supporting the idea the
Q3 rebound was entirely due to temporary factors," said Vicky
Redwood at Capital Economics.
    "It's not a particularly good backdrop for Osborne to be
presenting against. He remains hemmed in."
    Finance minister George Osborne is due to deliver a
half-yearly budget statement to parliament on Wednesday. 
    He said on Sunday that closing the budget gap was taking
longer than forecast, while weak growth means public borrowing
is not falling as planned, endangering Britain's triple-A credit
rating, which Osborne has pledged to defend. 
 
    The Conservative-led coalition government's failure to
deliver a strong recovery is its biggest political problem and
polls show the opposition Labour party would regain power if an
election were held now.
    The Bank of England launched a flagship scheme to boost
lending in August, adding more stimulus on top of its 375
billion pounds of quantitative easing, but initial figures on
Monday suggested any benefit to growth is several months away.
    In its report, the BCC said the government needed to do more
to support growth, job creation, exports and investment. But
Osborne has insisted he will stick with the thrust of his
deficit-reduction programme.
    After suffering two recessions in four years, Britain
bounced back to growth last quarter after receiving a huge boost
from extra working days and London's hosting of the Olympic
Games. But the economy is forecast to expand at a tepid 0.1
percent in the last three months of 2012, with little pick-up
seen in the year ahead. 
    The BCC revised down its growth forecasts for 2013 and 2014
to 1.0 and 1.8 percent respectively from 1.2 and 2.2 percent,
citing the global slowdown, domestic austerity measures and weak
household consumption.
 
    The downbeat view was supported by the Markit/CIPS
Construction Purchasing Managers' Index (PMI), which fell to
49.3 last month from 50.9 in October, showing construction
activity shrank last month. Confidence about the next 12 months
fell to its lowest in almost four years, the survey showed.
The headline figure was the lowest since August and below the 50
mark that separates growth from contraction for the third time
in four months. It was also below even the weakest forecast in a
Reuters poll and well short of the median 50.5 prediction.
    "This latest data ... set the scene for continued difficult
trading during 2013," said Simon Rawlinson, head of strategic
research at consultancy firm EC Harris.
    New orders saw their steepest decline in just over 3-1/2
years last month, the survey found, pushing firms to shed jobs
at the fastest pace since December 2010 in anticipation of a
prolonged period of depressed demand.
    Official data suggests construction output is more than 10
percent lower than a year ago. 
      
    LACKING CONFIDENCE 
    British retail sales edged up in November, though by less
than analysts were expecting, as shoppers hunted for cheap
Christmas gifts, the BRC said. 
    The improvement follows a solid reading from Confederation
of British Industry's November retail sales index and a rise in
consumer confidence on the GfK measure to its highest in 18
months after weak official data in October.
    Like-for-like retail sales - a measure that strips out
changes in floorspace and is favoured by equity analysts - rose
by 0.4 percent in value on the year, after falling 0.1 percent
in October, the BRC said. Economists polled by Reuters had
expected a 0.9 percent rise.
    "Today's report shows that retail sales failed to progress
as the economic outlook is rather uncertain and labour market
conditions are set to deteriorate in the coming months," said
Annalisa Piazza at Newedge Strategy.
    Trade group BCC, representing firms employing more than one
in five private-sector workers in Britain, said unemployment was
likely to peak at around 8.1 percent in the final months of next
year partly due to job losses in the public sector.
    Data released on Monday showed manufacturing activity shrank
less than expected in November, though the sector remained
fragile, while figures due on Wednesday are expected to show 
that growth in Britain's services sector picked up.
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