Weak industrial output data, a pessimistic outlook from manufacturers and a slowdown in retail sales growth have cast doubt over the strength of any recovery in Britain's economy.
Official data today showed industrial output failed to grow in October, disappointing expectations for a modest rise, and suggesting the sector made a weak start to the fourth quarter. And a separate survey from the Confederation of British Industry showed firms expect output to slide in the next three months, even though orders fell at their slowest pace in a year.
There was more bad news in a survey from the British Retail Consortium, which showed annual growth in retail sales values slowed to 1.8 per cent in November, a three-month low.
"Only flat production in October and a somewhat mixed December CBI industrial trends survey dilutes hopes that the manufacturing sector will contribute significantly to GDP growth in the fourth quarter," said Howard Archer, economist at IHS Global Insight.
Unlike most other industrialised nations Britain remains stuck in its longest recession since World War Two and today's data will disappoint the government, which has been banking on a pick-up in growth to boost its chances in an election next year.
Finance minister Alistair Darling will downgrade his economic forecast for 2009 in his pre-budget report to parliament tomorrow and stick to his prediction for a modest recovery in growth in 2010, according to Treasury sources.
The pound fell and gilt futures rose after the figures as investors scaled back bets on a swift recovery in the UK.
Bank of England policymakers are also cautious about the prospects for the UK economy and today's figures reinforce the likelihood the central bank will hold interest rates at a record-low 0.5 percent at its rate-setting meeting this week.
The last estimate of third-quarter GDP showed a 0.3 per cent contraction, although a sharp upgrade to construction output is likely to lead to an upward revision in the final estimate due later this month.
But a downward revision to September's industrial output figures today may offset some of that and analysts reckon there will not be a significant improvement in the last three months of this year.
"Whilst the central case is that GDP growth resumes in Q4, there's not much to suggest it's going to be a vibrant rebound. It's sluggish," said Ross Walker, economist at RBS.
Still, positive news on the housing market provided one bright spot, with mortgage lender Halifax reporting the first annual rise in house prices in nearly two years.
Record low interest rates and government measures to stimulate the economy, like the car scrappage scheme and temporary reduction in value-added sales tax, have propped demand recently, possibly preventing an even bigger slump.
The Society of Motor Manufacturers and Traders reckons the cash incentive for motorists to trade in their old cars has resulted in more than 250,000 new car registrations since the scheme was introduced. It has also boosted domestic car production, according to the ONS.
But both measures are set to expire next year and the weak public finances mean Darling is unlikely to announce any big giveaways in his pre-budget report tomorrow.
Business groups urged the government not to take any action that would put the recovery at risk.
"All eyes will now be on the Chancellor to provide a stable and predictable business environment to support recovery and not bring forward measures that damage the economy at such a critical time in the cycle," said Lee Hopley, chief economist at the Engineering Employers' Federation.