Exports pick-up expected to revive manufacturing

MANUFACTURING industry is expected to emerge from recession in the next four months as export orders pick up and high street spending gathers pace, figures from the Confederation of British Industry and the Bank of England suggested yesterday.

The pound opened at a record low of DM2.3157 on concern that the Government might cut interest rates again to ensure recovery. But speculators took profits during the day by cashing in short positions. This lifted sterling 1.27 pfennigs above Wednesday's close to end the day at DM2.3381.

Optimism among manufacturers has risen to a nine-month high, according to the CBI's latest monthly survey. Some 26 per cent expect to step up production in the next four months, with 17 per cent expecting to produce less.

This suggests that factory output in the four months to April will be about 0.75 per cent up on the previous four months, according to a Midland Global Markets computer model that corrects for the usual over-optimism in the survey. This rate of increase was last seen at the beginning of 1992.

Bank of England figures also suggest the revival in high street spending may be gathering pace. The narrow money supply measure M0 - largely cash - is on course to have grown 4.6 per cent in the year to February, up from 4.1 per cent last month and above the Treasury's 4 per cent target ceiling. M0 is seen as a good contemporaneous indicator of consumer spending.

The rise in output expectations reported by the CBI reflects a sharp improvement in export orders, as sterling's fall since Black Wednesday has made British goods cheaper in overseas markets. Order books are at their most buoyant since August 1990. But stocks of unsold goods are still excessive, suggesting a revival in demand may be met from the storeroom shelf.

The revival in orders and output expectations has left manufacturers more confident they will be able to increase prices in the next four months. Some 26 per cent expect to raise prices, compared with 14 per cent who expect to cut them.

The Midland Global Markets model suggests the CBI survey is consistent with a rise in factory gate inflation to about 4.25 per cent by mid-year, compared with January's 3.5 per cent.