London, April 12 (Bloomberg) -- U.K. manufacturers were the most optimistic they'd been in a yearduring the first quarter, suggesting industry believes it will shake off the effects of slower growth inthe U.S. and Asia, a survey showed. The British Chambers of Commerce said half the manufacturing companies it surveyed wereconfident sales would rise, up from 46 percent in the fourth quarter. Service companies' confidenceof rising sales was unchanged at 53 percent. The figures undermine arguments that the Bank of England should cut its benchmark lending ratefurther from 5.5 percent after it made two quarter point rate cuts earlier this year, intended to wardoff recession. ``Despite further evidence of a slowdown and retrenchment, underlying strength in the domesticeconomy remains, with manufacturers confident of avoiding the worst of the impact of the globalslowdown,'' said David Sears, deputy director general of the BCC. ``The data we have do notsupport fears of imminent recession.'' Sears said the central bank's rate cuts ``steered the right course to shore up confidence.'' Hewarned policy makers would have to watch for further signs of deterioration in the economy, thoughthe current survey hasn't turned up those signs yet. ``I don't think we can ask for another rate cut in May on the strength of this survey,'' said IanFletcher, head of policy for the BCC. BCC officials said the rise in confidence reflected a decline in the value of the pound against theeuro, which makes British goods cheaper abroad. The euro fetched 63 pence in February, morethan the 60 pence the European common currency was worth in November.
Margins Squeezed
Confidence that profits will rise rose to 34 percent from 32 percent, indicating that companies'margins are being squeezed. The survey also showed orders for goods in the U.K. slipping from fourth-quarter levels. Thebalance of companies seeing higher orders at home fell to 8 percent from 12 percent. Orders fromabroad were little changed at 1 percent after showing no growth in the fourth quarter. In the service industry, which accounts for two-thirds of the U.K. economy, orders from home andabroad slowed. Just 26 percent of companies had higher home orders in the first quarter, downfrom 31 percent in the fourth quarter. Export orders slowed to a balance of 8 percent of companiesseeing stronger orders, from 13 percent in the fourth quarter. The survey, covering 7,000 companies, was taken between Feb. 26 and March 21. Concern about foot-and-mouth disease in livestock and the U.S. economic slowdown todayprompted the Confederation of British Industry, the U.K.'s largest employers' organization to cut itsU.K. growth forecast.
Alternative Prognosis
The CBI, Britain's largest employers organization, now predicts the U.K. will grow 2 percent thisyear rather than the 2.5 percent if forecast in February. The prediction was reinforced by a separate survey from the Institute of Directors, a lobby group forcompany executives, showing business confidence fell in the first three months of the year for thefourth straight quarter. With orders, production and employment weakening and price pressures ``benign,'' the instituteforecast the Bank of England will cut rates to 4.75 percent by year end.