IoD sees manufacturing pick-up

Fresh signs of a recovery in manufacturing were revealed yesterday in another optimistic business survey. In the fourth recent survey to conflict with official figures showing stagnant industrial output, the Institute of Directors reported a "considerable improvement" in manufacturing.

Overall, the IoD survey reported output growth in April- June was about as strong as the previous quarter, but within the total there was a significant pick-up in manufacturing. Companies were even more optimistic about future output.

This follows similar conclusions from the CBI, Chambers of Commerce and Chartered Institute of Purchasing and Supply during the past fortnight.

A sizeable majority of directors were optimistic about their companies' prospects during the next three months, with service companies the most upbeat. The IoD said that during the quarter the number of respondents reporting a rise in employment had risen 7 per cent and output by 14 per cent. Most directors expect the trend to continue.

The main sign of weakness was the indication that depressed overseas markets were having an impact on exporters.

However, as in other surveys, there was no sign of any increase in pay or prices. "Inflationary pressures do seem relatively subdued," Ruth Lea, head of the IoD's policy unit, said.

Ms Lea said the buoyant results made the weak official figures puzzling. "Surveys tend to be more in the way of leading indicators," she added.

Other figures yesterday brought more evidence that the economy is turning up. New construction orders rose in the second quarter of the year, while a separate survey showed most chartered surveyors expect an increase in their workload.

A separate report yesterday suggested that a forthcoming change in the calculation of the financial sector's contribution to the UK economy could add 2.5 per cent to GDP.

The service financial institutions perform in mediating between borrowers and lenders is not counted in GDP because the national accounts treat interest payments as a transfer within the economy. A new international standard proposes that financial intermediation should be measured using the difference between wholesale money market interest rates and retail rates. This could increase measured GDP substantially in countries with a big financial sector, according to the National Institute of Economic and Social Research.

The paper comments: "Countries whose GDP is increased disproportionately are likely to resist the change because otherwise they may face pressure for increased contributions to the EU budget."