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. Last Updated: 07/27/2016

War, Recession Looming Over U.K. Economy

LONDON -- Britain's economy took a dramatic and unexpected turn for the worse last month, with manufacturing tumbling into recession and retail sales stumbling as uncertainty over the Iraq war weighed heavy on sentiment.

Economists said that with the war appearing likely to drag on for some time, two surveys released Tuesday would add to pressure on the Bank of England's Monetary Policy Committee to cut interest rates again.

The Chartered Institute of Purchasing and Supply's monthly purchasing managers' index, sponsored by Reuters, fell for the fourth straight month in March to 46.1 from 48.1, reaching its lowest level since December 2001.

A reading below 50 indicates contraction in the sector while anything above 50 shows expansion. CIPS said 80 percent of the survey responses, conducted between March 14-25, were received before the U.S.-led invasion of Iraq began March 20.

The decline, which was the biggest one-month drop since last June and confounded economists' forecasts for a reading of 48.4, "signaled a contraction of the U.K. manufacturing economy at a significant and increased pace," CIPS said.

Meanwhile the Confederation of British Industry's latest monthly survey of the country's retail sector showed the biggest drop in year-on-year sales in more than a decade.

That survey was conducted before the outbreak of war and signaled, according to economists, that the expected pullback in consumer spending was nigh.