"One is that the euro area may be adversely affected by
the spill-over from Greece's debt crisis. Secondly, the United Kingdom has
recently lost competitiveness against the euro area as sterling has risen.
Thirdly, there are risks of renewed weakness to domestic demand as the UK's
fiscal deficit is corrected," NIESR said.
The pound has recently gained ground against the euro, which
has come under pressure from the debt woes of some of its members.
British economic indicators continued to give mixed signals
Friday, as manufacturing showed signs of resilience but a separate survey
detected growing concern among consumers about inflation.
Manufacturing output fell 0.4 percent in April from March,
but was still 3.4 percent higher than a year earlier, the Office for National
Statistics said Friday. The monthly decline also followed a 2.2 percent jump in
March.
The broader index of production, which includes mining and
energy production, was up 2.1 percent from a year ago, despite a drop of 0.4
percent from March.
"Even if output were to remain flat in May and June,
quarterly manufacturing output growth in Q2 would still be a very healthy 1.7
percent," said Hetal Mehta, senior economic adviser to the Ernst and amp;
Young ITEM Club.
"Manufacturers are rebuilding their stock levels. In
addition, the pound remains weak and is continuing to support UK
competitiveness," Mehta said, adding: "Manufacturing is clearly
leading the recovery." Output of motor vehicles was up particularly
sharply on the year, rising 28 percent, and production of power machinery was
up 30 percent.
However, a survey by the Bank of England which asked
respondents to guess the current rate of inflation and the rate over the coming
year, showed mounting fears that consumer prices will rise.
The median expectation of inflation over the coming year was
3.3 percent, compared to 2.5 percent in February.
The current inflation rate was seen at 3.6 percent, up from
3.3 percent in February and just shy of the latest official estimate of 3.7
percent registered for April, a 17-month high.
The Bank of England, which has an official inflation target
of 2 percent, conducted the survey in mid-May.
Despite the growing concern about inflation, the Bank's
Monetary Policy Committee announced on Thursday that it was holding the base
interest rate at an all-time low of 0.5 percent.
"The MPC would have seen today's data before making its
decision to keep policy unchanged yesterday (Thursday)," said Varun Bhabha
at Barclays Capital. "Hence, it does not provide us with anything new
regarding the outlook for policy." The bank cut the rate to that level in
March 2009 in an effort to pull the country out of steep recession, which
finally ended in the last quarter of 2009.
