Boom conditions back for the high street and industry

Economy: Whitbread and M&S promise 5,000 new jobs as tourism surges and manufacturing output rises

Further evidence emerged yesterday of a return to boom conditions on the high street and in industry as two of Britain's largest retailers promised to create 5,000 new jobs this year, tourism surged and manufacturing data showed the first quarterly rise in output for a year.

The feelgood factor is back with a vengeance, according to Peter Jarvis, chief executive of Whitbread, the brewing and leisure group that yesterday reported a 14 per cent rise in first-half profits. With the benefits of tax cuts and better job security, he said he expected the good times to roll at the group's restaurants, pubs and hotels for at least the next two years. Whitbread plans to create 3,000 new jobs this year.

Marks & Spencer added to the good cheer with the announcement that it would be adding 2,000 to its payroll. Sales in its UK stores in the half year to September were 8 per cent higher and Sir Richard Greenbury, executive chairman, said: "Consumer confidence seems to be returning so we are working with suppliers to drive sales harder."

Industry is starting to share in the economic recovery, new figures suggested yesterday. Manufacturing output rose 0.7 per cent in the three months to September, its first quarterly rise for a year, virtually regaining its 1995 peak.

The favourable output figures delighted the Government. Angela Knight, Economic Secretary to the Treasury, said: "The gloomy days are gone and the sun is shining on British industry."

Labour welcomed the news too, but Margaret Beckett, shadow trade secretary, pointed out that manufacturing output had climbed by only 2.1 per cent since 1990. There were also concerns that the strength of the pound, which rose briefly above DM2.50 yesterday, could harm exports.

Higher estimates of production in July and August, along with early results showing that manufacturers built up stock levels in the third quarter, are likely to lead to an upward revision in gross domestic product. The preliminary estimate of a 0.8 per cent increase in GDP was already high enough to have triggered last week's quarter-point increase in base rates.

Many City economists believe the strength of the economy's recovery will make another increase in interest rates necessary if the Government is to meet its inflation target. "Above-trend growth in GDP should be maintained. This will keep upward pressure on interest rates," said David Walton at Goldman Sachs.

Mr Jarvis said part of Whitbread's success was due to stronger markets but he attributed much of it to an ability to read demographic changes that have attracted women and families into traditionally male preserves such as the local pub. He quoted a recent study of Britain's leisure markets that predicted: "The future is female: women's stamp on society will become more marked as their participation in work continues to grow and they begin to outperform males at all levels of educational attainment."

Whitbread dominates the casual eating-out market in Britain, owning the top three non-burger chains: Beefeater, Pizza Hut and Brewers Fayre. It has also targeted the two fastest- growing age groups, people aged between 35 and 44 and between 55 and 64, who have traditionally been light users of pubs but have been increasingly wooed by more astute marketing of pubs and restaurants.

Mr Jarvis also highlighted the rapid rise in tourist numbers visiting Britain in recent years, which has benefited its budget Travel Inn chain and the four-star Marriott hotels it acquired last year. More than 26 million visitors spent an average of pounds 550 each on UK holidays in 1995 and the value of the market is forecast to soar by the year 2000.

Mr Jarvis said Whitbread's improved performance reflected better trading conditions but also the company's success in taking market share from its competitors and the benefits of a heavy capital expenditure and acquisitions programme in recent years.

The gains in manufacturing output in the third quarter were spread across several industries, especially engineering.

Production by the engineering industry rose 1.3 per cent during July- September to reach an all-time high, driven by record output of electrical equipment including computers. Computer production has been growing at a consistently strong annual rate of 2-4 per cent.

There was a 1.7 per cent increase in textiles, leather and clothing, and smaller increases in output of basic metals and "other" manufacturing.

Within manufacturing, output of the food, drink and tobacco, nuclear and chemicals industries declined compared with the second quarter.