Baghdad bounce misses factories

HOPES of a Baghdad bounce in the manufacturing sector evaporated today as new figures showed that orders, output and employment have continued to fall despite an end to the Iraq conflict.

The CBI said while there were some signs of improving confidence, firms were suffering a relentless downturn.

Despite the Bank of England's surprise interest-rate cut to 3.5% a fortnight ago, the CBI's chief economic adviser Ian McCafferty said another may be needed unless there is a pick-up in demand from the US.

The CBI's latest quarterly survey shows domestic orders fell at their fastest for four-and-a-half years over the past quarter. Overseas demand also deteriorated.

No fewer than 39% of firms in the CBI's survey experienced a drop in export orders, and 16% a rise. The balance of minus 23% is the worst since January 2002.

The CBI said the recent softening in the pound may help the export outlook and that output was expected to improve over the next quarter. Its general optimism index is the highest for a year.

But George Buckley at Deutsche Bank said: 'There are some signs of an improvement but the large drop in orders is still pretty appalling and there has not been as much of an upturn as we were expecting.'

Among manufacturers, 68% are working below capacity and 62% cite uncertainty as the main constraint on investment - the highest reading since the 9/11 terror attacks on the US.

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