British industry has been stuck in the doldrums since the new year. Industrial output declined in January while the rise in prices at the factory gate last month was surprisingly small.
With a separate survey suggesting that retail sales growth slowed a little in the year to February, yesterday's batch of statistics helped restore calm to the financial markets and encouraged economists who thought last week's reduction in the cost of borrowing was justified.
``The Chancellor is likely to feel fully vindicated by his decision to cut base rates,'' said David Walton at the investment bank Goldman Sachs.
However, most City analysts said there was no prospect of another cut in the short term as long as the financial markets remained unsettled. Others think there is a danger of greater inflationary pressure later in the year.
``The end of the period of base rate cuts is approaching,'' Mr Walton said. Indicators such as growth of the money supply measures and house prices raised questions about the inflation outlook, he said.
However, yesterday's figures showed that the trend in industrial output remained subdued in January. It fell 0.5 per cent in January due to lower output of energy and weaker North Sea gas extraction, the result of a one-degree improvement in the average temp-
erature for the month.
Production was flat in the three months to January, and only 1.7 per cent higher than a year earlier.
Manufacturing output regained the same level as its mid-1990 peak in January. It rose 0.3 per cent during the month, partially reversing a 0.8 per cent fall in December. But it was 0.6 per cent lower in the three months to January than the previous three months, and up only 0.5 per cent in the year.
Manufacturing was weak across the board during the latest three-month period. The only area of strength was output of durable goods - consistent with surveys which have shown sales of goods such as furniture and carpets starting to climb.
``The trend in manufacturing output remains chronically weak, with little prospect of a near-term recovery,'' said Adam Cole, UK economist at brokers James Capel.
A further sign of weakness in industry was a smaller-than-expected rise last month in both manufacturers' materials costs and prices charged at the factory gate.
Input prices fell for the second month, down 0.3 per cent on a seasonally adjusted basis. They rose 3 per cent in the year to February, the slowest rate of growth since June 1994. Their level has fallen by nearly 2 per cent during the past six months.