Worst may be over for British economy: analysts

The worst of the recession may be behind the British economy, according to economists.

Improvements in business sentiment and mortgage approvals, plus a fall in corporate insolvencies, were taken by economists to be signs that the large falls in GDP seen over the past six months may be over - the economy will continue to shrink, but at a slower rate.

However, few experts believe the economy will stage anything but a feeble recovery this year and next.

The brightest news came in manufacturing. The last quarter of 2008 and the first months of 2009 witnessed an extreme adjustment in output as retailers reacted to falling demand by selling from stock rather than placing new factory orders, leading to a collapse in production, especially in the car industry. That phase may be drawing to a close.

The Chartered Institute of Purchasing and Supply's index of industrial confidence improved again last month, with a reading of 42.9, against 39.5 in March and a nadir of 34.9 in November.

In the Cips index, a figure of below 50 indicates a contraction, and one above 50 an expansion, so the trend is negative but on a gentler slope.

The near-30 per cent depreciation of sterling since the summer of 2007 seems to be feeding through to exports, but Roy Ayliffe, a director at Cips, cautioned: "We are still far away from a turnaround, and the industry is firmly embedded in the trenches of the recession. Tough trading conditions with ongoing cuts continue to bleed UK firms dry: as a result, over a third of firms were forced to streamline staff as they continue to operate on very tight margins."

Indeed, personal insolvencies rose last month, a reflection of the rising trend of unemployment and negative equity facing homeowners.

Some 30,253 people went into bankruptcy or entered into an individual voluntary arrangement in the first months of 2009, an increase of 22.9 per cent on last year, and a record for any quarter since records began. The average debt was £50,020 ($130,000).

However, the number of corporate failures fell. A total of 1783 firms were taken into receivership between January and March, 27 per cent fewer than in the last quarter of 2008, though up about 50 per cent on 2008.

The Bank of England reported a marginal improvement in new mortgage approvals, with 39,230 fresh loans granted in March - 1293 more than in February and the highest in 10 months.

Yet they remain at 60 per cent below pre-credit crunch levels, and analysts at Capital Economics say they "remain consistent with further falls in house prices of around 15 per cent per annum".

- INDEPENDENT