Economy may stall as euro crisis hits manufacturers

Britain's economy is stalling badly, with factory orders tumbling as export markets in the beleaguered eurozone seize up. The Confederation of British Industry's industrial trends survey for November found that orders declined at the fastest pace in more than a year.

Companies now expect a fall in production over the next quarter, which bodes ill for fourth-quarter GDP.

While in its latest revision the Office for National Statistics confirmed third-quarter growth at 0.5 per cent, much of that was down to Government spending and manufacturers restocking their inventories, without which there would have been a contraction.

Ben Broadbent, a member of the Bank of England's Monetary Policy Committee, said yesterday that the economy faced a 50 per cent chance of contracting in the fourth quarter and could still slip into recession.

"There is clearly a risk of that," he said. "The central forecast [for growth] is around zero for Q4, so the chances of this being negative in that quarter are roughly one half."

The ONS warned that growth "tended to be concentrated in just a few components and so appears rather polarised". It added: "Households continue to face difficult financial conditions, not least because inflation is more than twice the rate of earnings growth. This, together with an uncertain labour market, is continuing to weigh down household confidence."

Of the 446 firms surveyed by the CBI, 42 per cent said export orders were below normal, with just 11 per cent saying they were better than usual. The survey balance of -31 per cent is the lowest since January 2010 and the first time it has fallen below the long-run average of -21 per cent since February 2010. Total order books also showed no improvement, with 34 per cent describing total orders as below normal compared with 15 per cent above, a sharp deterioration of the position compared with earlier in the year.