Manufacturing nears recession as retail sales growth slows

FIGURES showing manufacturing output flat, inflation at the factory gate falling to its lowest since 1967 and hinting at slower retail sales growth encouraged hopes yesterday that the danger of an increase in interest rates has passed.

The official statistics indicated manufacturing is on the verge of recession, and helped nudge the pound back below the psychological DM3 barrier yesterday.

But the view that the evidence has now vindicated the majority on the Bank of England's Monetary Policy Committee against a rate rise was not universal. Hawks in the City took support from a new monthly estimate of GDP which suggested growth has picked up modestly since the new year.

There is no doubt manufacturing is the weakest part of the economy, with output unchanged in January after falling for the previous three months. A sharp drop in oil and gas production and gas and electricity output, due to unseasonably warm weather, took the broader industrial production measure down 0.6 per cent during the month.

Manufacturing activity is scarcely any higher than a year ago, and has reached a level barely 5 per cent higher than its 1990 peak. But some analysts remained convinced the official figures underestimate the health of industry, as surveys and reports of skill shortages have painted a more upbeat picture.

But there was no disagreement about the lack of inflation in industry, with prices paid for materials falling 0.2 per cent in February to a level 9.5 per cent lower than a year ago and little higher than 10 years ago.

"Core" prices charged by manufacturers rose just 0.1 per cent. Their annual inflation rate, which edged down to 0.4 per cent, is the lowest since 1967.

Meanwhile, a survey indicated a sharp turndown in the value of sales on the high street last month. The British Retail Consortium said total sales growth slowed from a buoyant 9.0 per cent in January to 6.6 per cent in February. The underlying trend was more buoyant, nearing its summer peak.

A new economic indicator published for the first time yesterday, a monthly estimate of GDP published by the National Institute of Economic and Social Research, suggested growth had recovered slightly.

The new index, which has the merit of giving a broad assessment of the economy at more frequent intervals than the official GDP data, rose by 0.5 per cent in the three months to February, up from a low of 0.2 per cent in November, although still well below the 1.2 per cent three-month growth rates seen in July and August.