Economic growth strengthens: Fewer insolvencies will contribute to recovery; industrial production rises

THE ECONOMY has been growing more strongly so far this year than official figures currently show, revisions to industrial production data suggested. Confirmation that growth has been underestimated could hasten a rise in interest rates.

The British Chambers of Commerce provided further evidence that growth is strengthening, reporting that 7,961 companies went to the wall in the second quarter, 10 per cent fewer than a year ago.

'The knock-on effects of falling insolvencies will themselves contribute to recovery; fewer firms going bust means fewer bad debts to suppliers,' Richard Brown, BCC's deputy director-general, said.

The Central Statistical Office raised its estimates of industrial production for each of the first five months. April's figure rose 0.4 per cent and May's 0.7 per cent, in addition to reporting a 0.2 per cent rise between May and June.

Industrial production in the second quarter exceeded, for the first time, the record level reached before the recession. City economists said the CSO was likely to raise its estimate of growth in the economy in the second quarter from 0.9 per cent to at least 1 per cent.

Adrian Cooper, an economist at James Capel, said he would not be surprised to see a more dramatic upward revision, as the publication of the CSO's Blue Book later this month is likely to revise estimates of national output through last year.

Manufacturing output figures for March, April and May were also revised upwards, but the CSO alo reported an unexpected 0.2 per cent fall in output in June as manufacturers cut back production. But output in the second quarter was still 1.3 per cent up on the first.

The CSO said factory output was growing at a trend rate of 4.5 per cent a year. But it is 2.6 per cent below the peak it reached before the recession and only 2.2 per cent above its peak in 1974.

The growth in factory output in the second quarter was broadly spread. A third of the increase came from the coke, refining and nuclear fuels industries, boosted by higher oil production. Food, drink and tobacco production was up 0.8 per cent.

Strong demand for building materials triggered higher production of rubber, plastics and non-metallic minerals, which recorded quarterly growth of 2 to 3 per cent. Electrical and electronic equipment production rose 3.1 per cent in the quarter.

Industrial production is growing more quickly than manufacturing output because it also includes the buoyant oil and gas industries, as well as electricity, gas and water companies. Oil and gas production rose 6.8 per cent in the second quarter to stand more than 37 per cent higher than in the same period of 1993. This reflects the opening of new North Sea oil fields.

The markets showed little reaction to the industrial production figures, with their attention fixed on the growing likelihood of an early rise in US interest rates.

They also reacted more calmly this week to the Bank of England's weekly auction of 91-day Treasury bills, which last week triggered speculation on an earlier base-rate rise. The average accepted rate fell from 5.6 to 5.37 per cent.