Industry misses out on recovery

Industry is trailing behind the rest of the economy as it gathers steam, according to official figures which showed a drop in manufacturing output in August.

The decline came as a surprise, as recent surveys have suggested a marked rise in industrial orders and production. According to the statisticians, however, the trend in manufacturing remained flat all summer, with total industrial production doing little better.

The Treasury painted the drop in output in August as an erratic move following a strong increase in July. "The clear message of recent business surveys is that manufacturing output is now on the up," a spokesman said.

But the Labour Party pounced on yesterday's figures, ahead of the economy debate at the Conservative Party conference. Margaret Beckett, shadow trade secretary, said output was at best stagnant.

The City took the news as a signal that Kenneth Clarke, Chancellor of the Exchequer, would at least be able to postpone the need to increase interest rates as the economy recovers. "It will help the Chancellor put off the day of reckoning until after the election," said Adam Cole, an economist at brokers James Capel.

Yet few experts thought yesterday's weak figures would change the Bank of England's preference for a modest increase in base rates to skim the froth off the pick-up in the economy. Minutes of the 4 September monetary meeting, which will be published tomorrow, will reveal whether Eddie George, the Bank's Governor, repeated his advice last month.

Total industrial output fell 0.3 per cent in August, with declines in manufacturing and mining, oil and gas extraction, although electricity, gas and water output was up during the month. Manufacturing output was down 0.3 per cent, and its 0.9 per cent year-on-year drop was the biggest since June 1993.

The less erratic three-month changes also showed a 0.3 per cent fall in total output. But within that total, manufacturing was up 0.1 per cent, mining and oil and gas extraction down 0.8 per cent and the utilities' production down 3.2 per cent after the unusually cold spring.

The feeble performance in manufacturing afflicted a range of industries. During the three months to August there was a sharp decline in nuclear fuel reprocessing which took output in its category 7.1 per cent lower.

Most other industries saw little change in production, with two exceptions. These were textiles, leather and clothing, up 1 per cent and the key engineering sector, up 0.7 per cent.

Engineering production was one of the strongest performers in those three months compared with a year earlier, along with chemicals. All other manufacturing categories were down year-on-year.

Although most City analysts saw the August figures as an aberration, some were more cautious. "For all the improvement in corporate confidence, there is no impact on output," said Simon Briscoe at Nikko Europe.

He pointed out that, despite the consumer recovery, output of durable goods was up only 2.1 per cent in the year to August, while production of non-durable goods fell slightly.