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UK Economy Still Fragile

British manufacturing remains in deep slump and consumers continue to spend cautiously, according to reports Tuesday which underline fragility of Britain's recovery.

LONDON (AP) -- British manufacturing remains in a deep slump and consumers continue to spend cautiously, according to reports released Tuesday which underline the fragility of Britain's recovery from a deep recession.

Manufacturing output in the United Kingdom was flat in October compared to the previous month, official statisticians said, while the Confederation of British Industry said a fourth of manufacturers polled in a survey expect output to fall over the next three months, more than the 18 percent who expect to step up production.

The output figures released by the Office for National Statistics disappointed analysts' expectations for a modest rise on the month, while the CBI said its report was the gloomiest since July.

Ian McCafferty, the CBI's chief economic adviser, said demand was improving only slowly and that order books remained weak.

"This highlights the fragility of the recovery and the likelihood that economic activity will continue to bump along the bottom early next year," McCafferty said.

Consumer spending also showed few signs of vitality -- the British Retail Consortium reported a 1.8 percent rise in retail sales in October, but said that was weaker than expected.

The figure compared results from stores which were also open last year; including new stores, total retail spending was up a more robust 4.1 percent.

Stephen Robertson, director of the British Retail Consortium, said "consumer confidence is fragile and has taken a turn for the worse."

The National Institute of Economic and Social Research, a respected economic think tank, said Tuesday that it believed the U.K. economy had returned to growth in the fourth quarter.

The NIESR said it expects output grew by 0.2 percent in the three months ending in November, following a decline of 0.3 per cent in the three months ending in October. The Institute had predicted in September that GDP in the third quarter would be unchanged from the previous quarter, but official statistics showed a further decline in the period.

The toll the recession has taken so far on the British economy remained evident in the 12-month drops in industrial activity.

As measured by the statistics office, manufacturing output was down 8.4 percent in October from last year. Over the August-October quarter, considered a more reliable indicator of trends, it was down 9.9 percent on the year.

Economist Vicky Redwood at Capital Economics said industrial production in the fourth quarter still should beat the 0.9 percent fall in the third quarter, "but the recovery clearly looks fragile."

The biggest decreases in manufacturing were in basic metals and metal products, down 15.7 percent, and machinery and equipment, down 17.8 percent, the ONS report said.

Other production industries also remained mired in a slump. Mining and quarrying was down 11.8 percent, including a 10.5 percent drop in oil and gas extraction.

The nation's output of electricity fell by 11.7 percent and gas supply output fell 11 percent, the ONS report said.

A survey on the housing market by Halifax, Britain's largest mortgage lender, was somewhat more upbeat, showing a 1.4 percent in average prices in November.

Analysts say the rebound in house prices is due largely to a tight market in which fewer houses than normal are being offered for sale, while demand has been encouraged by interest rates at historic lows.

Halifax economist Martin Ellis said he doesn't expect the trend to continue. "Overall, our view is that house prices will be flat during 2010," he said.

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