Cut in output backs decision to reduce rates

Manufacturers cut production in April, giving Kenneth Clarke more ammunition to defend his surprise reduction in the level of interest rates last week.

Figures yesterday showing a small decline in manufacturing output and a bigger drop in total industrial output confirmed that industry remains the weak link in the economy. Recent figures have highlighted the contrast between the fortunes of manufacturers and consumers.

"One can only conclude that the Chancellor had a sniff of these figures when he acted last week," said Paul Mortimer-Lee, chief economist at investment bank Paribas. "Despite the setback in manufacturing we are not suffering from a broad deficiency of demand."

Upward revisions to earlier figures were not quite enough to eliminate the recession in manufacturing, which is struggling to escape from its overhang of excess stocks. Its level of output edged down by 0.1 per cent in the last quarter of 1995 and 0.2 per cent in the first quarter of this year.

However, the revisions did show that total industrial output, which includes the utilities, mining and oil and gas extraction as well as manufacturing, reached a record high in March.

"Industry's trio of problems - excess stocks, excess labour and weak overseas markets - will not disappear overnight," said Ian Shepherdson at HSBC Markets. Most economists predict that output growth will remain in the doldrums for some months, although higher demand is already reflected in increased consumer goods output.

Industry's output fell by 0.8 per cent in April, largely due to a weather- related drop in energy use compared with March. Manufacturing output fell 0.3 per cent during the month.

Taking the three months to April as an indicator of the underlying trend, total output was 0.3 per cent higher than the previous three months, and 1 per cent higher than a year earlier. Manufacturing was flat during the three months and 0.5 per cent up on a year earlier.

The biggest increases in output in February to April came in food, drink and tobacco, transport equipment and textiles, leather and clothing.

Industrial weakness spilled over into construction. Separate figures for the volume of new construction orders yesterday showed that the total rose 1 per cent in April, the second increase running. However, an increase in new housebuilding orders, to their highest level for over a year, and in infrastructure orders accounted for it.

Unemployment figures due today are expected to show another decline in the number of people claiming benefit.

William Waldegrave, Chief Secretary to the Treasury, claimed yesterday that deregulation had meant more jobs. In a speech to the American Chamber of Commerce in London, he said two-thirds of the jobs created since 1993 had been in industries paying above-average wages.

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