Manufacturing 'to lead recovery'

UK manufacturing has been hit hard by the global downturn

The UK manufacturing sector and exports in particular could help to drive the recovery in the UK economy, according to consultancy group Deloitte.

Manufacturing could take up the slack from a downturn in consumer and government spending, the report says.

The sector's share of the economy could grow from 11% to as much as 15%, while the financial services sector could contract from 8% to 5%.

The report also forecasts a fall in economic output next year of about 1%.

'New world'

The weakening of the pound will help to drive exports, it predicts.

"Although concerns have been voiced about whether the UK's manufacturing sector has shrunk too much, we see no reason why it cannot experience a mini-revival," the report says.

"The drop in the pound should help the UK to play to its traditional exporting strengths, such as the production of pharmaceuticals and aircraft," it adds.

It predicts a decade in which consumer spending underperforms economic output, and "several years" in which government spending is cut, or at least frozen, to compensate for "sky-high borrowing levels".

However, any recovery remains some way off, the report says.

"There remains a difficult period to get through before we see this 'new world'. The economy now looks likely to contract by some 4% or so this year... and will contract again in 2010 by around 1%," it predicts.

In last week's Budget, Chancellor Alistair Darling predicted that the UK economy would contract by 3.5% this year, but would grow by 1.25% in 2010.

However, the International Monetary Fund has said it expects the UK economy to shrink by 4.1% in 2009, and contract a further 0.4% in 2010.