Euro crisis hits UK exports and recovery hopes

Britain's recovery from recession looked ever more fragile today after exports were hit by the debt crisis in Europe.

A survey of factories found demand for UK-made goods from the continent faltered in June as the pound strengthened against the plummeting euro.

The Bank of England also warned that banks are struggling to raise funds to lend to households amid worries about the health of the banking sector in Europe. Lending to businesses rose over the last three months, but not by a lot.

Ross Walker, economist at Royal Bank of Scotland, said: "The big worry is still the euro area sovereign debt crisis damaging credit conditions and derailing the recovery."

The factory survey, by Markit and the Chartered Institute of Purchasing and Supply, showed manufacturers enjoyed another strong month in June. Its index of activity, where 50 marks the cut-off between decline and growth, hit 57.5 last month — down slightly from its 15½-year high of 58 in May.

However, growth in export orders dropped as economic turmoil in Europe and the decline of the euro hit sales of UK goods.

CIPS chief executive David Noble said: "It's been a tense month for the UK manufacturing sector. We're already starting to see the turbulent Eurozone make its mark, which is causing unease given that export orders arguably led the sector out of the recession."

Separately, the Bank said mortgage availability and lending to business improved in the second quarter.

However, mortgage lending is expected to drop over the next three months as banks find it harder to raise money on the international money markets.