First hopeful signs arise for manufacturing

The first glimmer of light at the end of the tunnel for manufacturing industry was revealed by official March production figures yesterday. A separate survey showed retail sales volumes rose for the seventh successive time last month.

"This may explain why the Chancellor did not cut interest rates this week. We may be beginning to see a picture of improvement rather than stagnation in industry," said David Mackie, an economist at investment bank JP Morgan.

The Office for National Statistics confirmed yesterday that it had abandoned plans to produce monthly figures on the output of the service industries because of lack of money - despite the fact that services account for nearly two-thirds of the economy. Many analysts think too much attention is paid to manufacturing.

Manufacturing output edged up 0.2 per cent in March, to a level a fraction higher than its mid-1990 peak. It was 1 per cent higher than in December.

Total industrial output, including mining and quarrying and the utilities, was up 0.3 per cent in March, and 0.2 per cent during the three months to March. The ONS said the trend in both manufacturing and industrial production remained flat.

It revised down its earlier estimates for manufacturing in January and February because stockbuilding had been far lower than first estimated. But economists took this as a sign that manufacturers were successfully running down their excess stocks faster than expected.

"We know manufacturers have loads of stocks. The key is how quickly demand now picks up, because they will not increase output until then," said Mike Dicks, UK economist at Lehman Brothers.

Overall, output was 0.2 per cent lower on average during the three months to March compared with the previous three due to declines in production in textiles and 'other' manufacturing. But some consumer sectors recorded strong gains. These included an 8.6 per cent rise in domestic electrical appliances, 7.7 per cent in TVs and radios, 3.7 per cent in furniture and a 3.7 per cent rise in clothing and footwear.

Further evidence of consumer recovery came from the seventh successive increase in retail sales volumes in April, according to the CBI's Distributive Trades Survey. It said volumes grew at a slightly faster annual rate than in March, although below retailers' expectations.

The underlying rate of growth, measured by the average of the latest three months, had levelled off after rising strongly since September.

For the third month running the strongest gains had been in sectors most closely linked to the housing market, such as china, DIY, furniture and household durables. Only specialist foods shops - including butchers - suffered a drop in sales compared with a year ago.

The survey showed that the balance of retailers reporting higher rather than lower sales last month was 32 per cent, up from 27 per cent in March. The balance reporting higher orders placed with suppliers was unchanged at 21 per cent.

Separate figures showed a sharp rebound in private housebuilding starts.