UK trudges towards recovery as manufacturing improves

UK manufacturing almost returned to growth in April and house prices showed their biggest annual rise in more than a year, suggesting that a slow economic recovery is on its way.

A senior central banker made a similar assessment of the economy, saying it was starting to mend.

"If we can just sustain it for a few more quarters, we really can begin to turn the corner again," Bank of England deputy governor Paul Tucker said in a newspaper article published on Wednesday.

"I think there's a long way to go but there's certainly reason for hope."

The economy grew 0.3 per cent in the first quarter and analysts hope that the signs of a recovery in manufacturing, which accounts for a tenth of Britain's gross domestic product, mean the start of a stronger second quarter.

The Markit/CIPS Manufacturing Purchasing Managers' Index (PMI) rose to 49.8 in April from an upwardly revised 48.6 in March, putting the sector within a whisker of the 50 line that separates growth from contraction.

Economists had expected a much weaker reading of 48.5.

UK's housing market also showed signs of resilience.

House prices inched down 0.1 per cent in April from March, but rose 0.9 per cent compared with a year ago - the best growth in 14 months, data from mortgage lender Nationwide showed.

Moreover, Nationwide said the central bank's recently extended credit scheme should buoy the market in coming months.

The Funding for Lending Scheme provides cheap funding to banks to encourage them to lend to businesses and households and will now run for an extra year until the end of January 2015.

Long and winding road
Although the latest data points to an economy slowly gathering momentum, it also shows that the road to recovery will not be easy.

Chancellor George Osborne on Tuesday urged the Bank of England's new financial regulators not to jeopardise a recovery by forcing banks to ramp up their capital buffers too quickly.

"It will be a rough ride, but there are chinks of light that mean a return to modest growth is likely towards the end of the year," said Rob Wood, economist at Berenberg Bank.

Meanwhile, he added, the manufacturing sector will probably continue to weigh on GDP growth for a couple of quarters.

April's improvement in factory activity was helped by the first expansion in new orders since January.

New export orders rose for the first time in more than a year and at the fastest pace since July 2011, on the back of increased sales to North America, West Asia, Latin America and Australia.

But demand from the Euro zone - the main market for UK's exports - remained weak.

"Domestic demand for manufactured goods is handicapped by current muted investment intentions and tightening public spending," said Howard Archer, economist at IHS Global Insight.

He also noted that Britons' budgets had come under renewed pressure from a recent rise in inflation and slow wage growth.

Nonetheless, economists think that the overall improvement in the economy so far this year after it shrank at the end of 2012 will deter the Bank from approving more asset purchases next week.

More action is likely after the bank's new governor, Mark Carney, takes over in July.