On the ropes and no end in sight: Tory alarm over recession grows Manufacturing output falls Jobless fears

THE PRIME MINISTER was facing mounting backbench pressure last night for positive action to end the recession after manufacturing output fell in August for the first time in four months. Indications grew that the demands may become politically irresistible when the Commons reassembles on Monday.

Official figures showed that manufacturing output dropped by 0.3 per cent in August, driven lower by a steep fall in car output. The depression in the motor industry deepened yesterday as Lotus and Ford announced fresh cutbacks in the face of declining sales.

Today's unemployment figures, for September, could bring further evidence of economic relapse. The City expects them to show the number of jobless climbed by 40,000, to 2.84 million. Even in the past three months, usually a more reliable guide to trends, manufacturing production was barely changed after rising earlier in the year.

Fears are growing that the decline in manufacturing may have accelerated in September, following the devaluation of the pound and expectations that confidence fell sharply as a result. Adding to worries of a further fall in manufacturing output last month was a recent Confederation of British Industry survey, which revealed businesses were decidedly less optimistic over output prospects.

The manufacturing sector had been the one bright spot in an otherwise bleak economic landscape but yesterday's figures suggest improvement was temporary and has come to an end.

The Treasury attempted to put on a brave face, saying that the fall in car production was already known: 'Manufacturing is still significantly above the trough, with the current trend looking flat rather than ownwards.'

The Central Statistical Office halved its estimate for the annual trend rate in manufacturing growth to 0.5 per cent. In the past three months, output was depressed by a 2 per cent fall in metals production and a decline of more than 1 per cent in chemicals output, indicating demand for basic materials has tailed off. Export markets for chemicals may have been hit by the pound's recent strength against the dollar.

Meanwhile, growing numbers of Tory MPs are accusing ministers of being obsessed with inflation when, they say, the recession is eating into the core of the economy with no apparent government response. Disaffection has spread from frequently vociferous backbench critics to normally loyal MPs and members of the key 1922 committee executive - some of whom are accusing the Government of drift.

Sir John Hannam, one of the executive's secretaries, said the Government 'cannot go on sitting it out', while Sir Tony Durant, an executive member, said: 'I am very concerned about the present situation. The Government must provide a package which could include a reduction in interest rates and include some capital investment in order to restore a sense that we know what we are doing.'

James Pawsey, another executive member, said: 'I am growing more concerned every day that the Government has made inflation the principal villain. I am beginning to think that they are fighting the wrong war, and that they need to concentrate on the economy at large.' He judged with other senior MPs that 'the disquiet will surface when the House reassembles'.

Sir John, who expected at least a

1 point interest rate cut 'in the very near future', said that Norman Lamont's job as Chancellor would be in jeopardy if he did not act. 'My confidence in the Chancellor continuing would be severely shaken if he doesn't begin to give greater priority to getting the economy moving. If he doesn't, I would say he is not the man to be

Chancellor.'

Conservative fears over the economy in general surfaced as some backbenchers demanded a rethink of the pit closures. Winston Churchill, MP for Davyhulme, wrote to Michael Heseltine, President of the Board of Trade, arguing that the economic case for the closures was not there. 'For the Government to edge unemployment in the industrial field towards a graveyard spiral, throwing tens of thousands on to the slag-heap at a time of deep recession when unemployment is already rising disturbingly fast seems to be the height of irresponsibility . . .'

Britain, he said, was losing too many manufacturing jobs. 'We can't just survive on Kentucky Fried Chicken and playing the money markets.' Labour demanded a statement on Monday on the pit closures, and plans a full-day debate on them on Wednesday.

John Smith, the Labour leader, denounced the cuts as 'senseless economics and energy madness' and accused the Government of being 'out of touch with reality and common sense'.

Today's unemployment figures are expected to show a further narrowing in the rates in different parts of Britain, with the total rising faster in the South.

That has been a consistent pattern since unemployment started rising again in the spring of 1990. The Conservative heartlands of southern England - where unemployment fell lowest in the boom of the late 1980s - have suffered most. This has narrowed the disparity with unemployment rates in the North, which have risen less quickly.

The national jobless rate has risen from its low of 5.4 per cent of the workforce in May 1990 to 9.9 per cent in August, but the rate in the South-east has almost trebled. In May 1990 the unemployment rate was half the national average, but the proportion is now more than 95 per cent.

On current trends unemployment in the South-east will be above the national average by the middle of next year. The jobless total in London recently topped the national average for the first time on record.

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