U.K. Manufacturing Recession Eases In May

Purchasing managers index rose to 45.4 from 43.1 in April, stoking hopes economy may be headed for recovery in the second half of the year.

LONDON (AP) -- The recession in Britain's manufacturing sector eased for the third month running in May, a closely-watched survey found Monday, stoking hopes that the wider economy may start to recover in the second half of the year.

In its monthly survey of the sector, the Chartered Institute of Purchasing and Supply said its purchasing managers index -- a broad gauge of activity -- rose for the third month running to 45.4 in May from 43.1 in April.

Despite the increase, the sector remains in recession. Any reading below 50 indicates contraction, but the closer to 50 the less severe the contraction.

Vicky Redwood, an economist at Capital Economics, said May's reading was consistent with annual falls in output of around 5 percent, but that "this would be a big improvement on the double digit declines" seen in the early part of 2009.

"Overall, further evidence pointing to a more modest drop in GDP in Q2 than in Q1 -- but still a long way to go before a sustained recovery looks likely," she added.

Britain's economy shrank by 1.9 percent in the first quarter from the previous three month period, slightly more than the 1.6 percent recorded in the fourth quarter of 2008.

Though May's increase in the purchasing index may cement predictions that the worst of the recession has passed, the Bank of England is still expected to keep its main interest rate at the record low of 0.5 percent for a while yet. On Thursday, the bank's rate-setting Monetary Policy Committee is expected to keep interest rates on hold and provide a further update about its policy of buying financial assets from banks in an attempt to get them lending again.

In another survey, data provider Markit found that its manufacturing purchasing managers' index for 16 countries that use the euro was revised up to a seven month high of 40.7 in May from the previous estimate of 40.5. In April the reading stood at 36.8.

The relatively encouraging news on the manufacturing sector comes ahead of Thursday's interest rate decision from the European Central Bank. The bank is not expected to cut its benchmark interest rate from the current 1 percent.

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