British manufacturers pick up production

MANUFACTURING industry stepped up production in September, following a sharp setback in the previous month, figures from the Central Statistical Office showed yesterday.

Factory output rose by 0.4 per cent in September, reversing two-thirds of August's fall. But almost all the increase was the result of a recovery in car production.

Output in the third quarter was 0.1 per cent lower than in the previous quarter, suggesting that industry's recovery has stalled over the summer. The CSO estimated that factory output was rising at a trend rate of 1 per cent a year, and that industrial production - which includes mining, quarrying, electricity, gas and water - was rising at an annual 2 per cent.

Robert Lind, economist at UBS, said he expected some renewed acceleration in manufacturing output in coming months. 'The latest CBI survey pointed to some modest expansion of output in the final quarter of the year, driven by domestic spending rather than export demand.'

The biggest output rise was 2 per cent from the coke, petrol refining and nuclear fuels sector. Output of pharmaceuticals, computers, wiring, machinery, minerals and wood also showed significant increases. The weakest sector was transport equipment, with shipbuilding, aerospace and commercial vehicles also depressed.

Separate figures showed Britain's trade deficit with the rest of the world narrowing to pounds 419m in August, the lowest for six-and- a-half years and less than a third the size expected in the City. This put the visible trade deficit back on a downward trend.

August's trade deficit with the rest of the world was the smallest since February 1987, but the pounds 801m deficit excluding erratic items - ships, aircraft, precious stones and silver - was the smallest in exactly eight years. Excluding erratic items, export volumes have risen 3.5 per cent since sterling left the European exchange rate mechanism last year, with import volumes up by 0.5 per cent. The volume of imports from Europe was at a two-year low in August.

The CSO thinks the number of goods imported and exported has risen more sharply than it had previously thought so far this year, but that their prices have risen less dramatically.

Keith Skeoch, economist at James Capel, said the Chancellor should ignore the trade figures in framing his Budget judgement and still tighten tax and spending policy. 'With consumer spending so high, there is a strong medium-term case for fiscal restraint,' he said.

The pound strengthened after the surprisingly low trade deficit was published, but fell back later as the City became increasingly sceptical. The pound opened at 80.6 per cent of its 1985 value, peaked at 80.9 and then dropped back to close at 80.7.

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