* UK factory output posts unexpected 0.8 pct drop in May
* Fall contrasts with private-sector manufacturing surveys
* Economists say consumption, not exports, driving recovery
By William Schomberg and David Milliken
LONDON, July 9 Britain's recovery from recession
is turning out to be an uneven one and the government is still
waiting for the shift to an export-driven economy it promised
after the financial crisis.
Manufacturing shrank in May at its fastest pace since
January and the country's trade deficit was its widest in six
months, according to official data on Tuesday that tempered
recent signs that growth was starting to pick up speed.
But three surveys published a few hours earlier showed
rising house prices, improved business confidence and steady
growth in retail sales.
And the International Monetary Fund raised its projection
for growth in Britain to 0.9 percent this year, up 0.3
The different pace of recovery in different parts of the
economy may be a consequence of the emergency stimulus measures
taken by the Bank of England and the government, which have
included support the housing market.
"This is a monetary-policy, low-rate, rising-consumption,
rising-house-prices-driven recovery, so I don't expect the trade
balance to improve very much," said Rob Wood, an economist at
Berenberg Bank in London.
In 2011, finance minister George Osborne spoke of "a Britain
carried aloft by the march of the makers" as he stressed the
need to rebalance the economy away from reliance on public and
private debt and more towards manufacturing.
Nonetheless, a combination of the crisis in the euro zone
and the government's austerity push have left Britain still
largely reliant on spending by its consumers, much of which is
financed by credit. A sharp fall in sterling over the last few
years has proved of little help to exporters.
Manufacturing shrank by 0.8 percent in May from April, the
Office for National Statistics said, much weaker than forecasts
for a 0.3 percent rise in a Reuters poll.
Output in the overall industrial sector - which makes up
about 15 percent of Britain's economy - was also weaker than
expected as it came in unchanged from April. It would have
shrunk without the help of completed maintenance work which
boosted oil and gas production.
"With the UK consumption outlook more positive as a result
of the apparent turn-around in the housing market, the risks in
the UK seem somewhat tilted to an old-school recovery built on
consumer spending sucking in imports," said David Tinsley, UK
economist at BNP Paribas.
STERLING FALLS AGAIN
Sterling fell to a four-month low against a basket of
currencies and British government bond prices rallied after the
data, which some investors said could bolster the case for more
stimulus by the Bank of England.
The central bank announced no new bond-buying stimulus last
week after the first policy meeting chaired by new governor Mark
Carney, but it surprised markets by warning against premature
expectations of an interest rate increase.
Now investors are waiting for Carney to spell out what kind
of long-term guidance he will use to show markets, businesses
and consumers how long interest rates are likely to stay at
their record low of 0.5 percent, something which could help
underpin domestic spending in the years ahead.
Economists have said Britain's gross domestic product is set
to grow by about 0.5 or 0.6 percent in the second quarter,
picking up a bit of speed from 0.3 percent in the first three
months of the year. Berenberg's Wood said he was predicting
growth of 0.4 percent in the April-June period.
The weak manufacturing numbers were a surprise given that a
survey of purchasing managers found the sector had its best
growth in more than two years in June. However, that is a month
later than the period covered by Tuesday's release.
"Today's figures feel a little out of kilter with other
industry data and what our manufacturing clients are telling
us," said Mike Rigby, who manages Barclays' banking
relationships with manufacturers.
The statistics office said Britain's goods trade deficit
grew to 8.491 billion pounds ($12.68 billion) from 8.430 billion
pounds in April. Economists had forecast 8.47 billion pounds.
Including Britain's surplus in trade in services, the
overall trade deficit widened to 2.435 billion pounds. Monthly
figures tend to be volatile, but over the three months to May,
total exports were up 1.9 percent and imports grew 2.3 percent.