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Economy in Brief

British Industry Survey Suggests Recovery Near
by Carol Stone June 24, 2004

The CBI Industrial Trends Survey for the UK shows some moderation in orders and expected output in June from May. Orders, after turning briefly positive in May at +1, slipped back to negative territory with a -6 reading for June. Output planned over the next three months has been positive all year long, but it eased from +22 to +15 in this latest report. More companies do anticipate, however, that they will be able to charge higher prices for orders booked in the coming three months.

At the same time, all three of these major components of the monthly survey of the Confederation of British Industry, even the order books that are still decreasing, are showing distinct improvements from their generally weak performance over the past four to six years. Price expectations, for instance, have been positive for the last three months, their strongest showing since early 1998. Similarly, the May figure for orders was the first positive one since February 1998; as recently as last October, the reading was -40.

Thus, British industry is working hard toward outright recovery. And this survey suggests that positive trends may emerge in actual numerical data on industrial output. As seen in the accompanying graph, planned output closely traces overall movements in data on industrial production (IP). The monthly data are very jagged, but on a quarterly basis, the year-on-year change in IP tends to follow the planned output reading by about a quarter. Correlation between the coincident figures has been a notable 76% over the last 25 years. The entire first half of 2004 includes firmly positive readings in anticipated production, which, according to this historical pattern, would lead to outright growth in actual production in just the next few months. Indeed, that measure has already improved to basically flat from a protracted deeply negative period since the middle of 2001.

Diffusion Indexes for Volume & Prices June 2004 May 2004 Apr 2004 June 2003 2003 2002 2001
Total Order Book -6 +1 -14 -27 -29 -27 -26
Output over Next 3 Months 15 22 12 -6 -3 5 -6
Prices of Orders Booked over Next 3 Months 5 3 2 -15 -12 -13 -16
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