Fall in factory output ends run of encouraging figures: More consumers expect economy to improve in coming year

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The Independent Online
THE RECENT run of unexpectedly upbeat economic indicators came to an end yesterday as the Central Statistical Office announced a fall in factory output in March. But the underlying trend showed manufacturers increasing production at the fastest rate for more than three and a half years.

Factory output dropped 0.3 per cent in March as sugar production fell from an unusually high February level. This followed rises of 1.3 and 1.4 per cent in the preceding two months, both of which were revised up from earlier estimates. Factory output has jumped decisively since the new year, having been flat through 1992.

Growing evidence of recovery has produced a dramatic surge in consumer confidence in the past month, according to the latest survey by Gallup for the European Commission.

Consumers expect the economy to improve in the coming year by a majority of almost two-to-one, the highest for a year. Consumers are much less worried about unemployment, following two successive monthly falls in the jobless total. But fear of redundancy is an important deterrent to high pay settlements, suggesting more good news on jobs could push settlements and inflation up again.

City economists had expected factory output to continue rising in March, but said the small fall did not mean the recovery was stalling. 'But it does add a note of caution to expectations of the pace of recovery,' said John Marsland, of the stockbrokers UBS.

Manufacturing output rose 2 per cent in the first three months of the year, to the highest level since the end of 1990. This was higher than the Central Statistical Office assumed when it estimated that non-oil national output rose 0.6 per cent over the last three months of 1992. This suggests the first-quarter gross domestic product figure may be revised upwards.

Factory output rose in all sectors in the first quarter, which the Treasury hailed as evidence that 'the economy is growing across a broad front'. The fastest growth was in metals, minerals and building materials. Engineering also grew strongly, helped by output of computers for export. Car production rose sharply in March.

Output of consumer goods was up 0.8 per cent in the first quarter. Investment goods output rose 3.7 per cent, the sharpest rise for more than four years. Chris Dillow, of Nomura Research, said: 'Investment and exports are leading the recovery, which is how we want it.'

Oil and gas extraction was 6.1 per cent down in the first quarter, but is likely to rebound, as maintenance work on the Forties field in the North Sea ended early this month.

The pound slipped slightly following the data, but ended 0.2 points up at 80.2 per cent of its 1985 value against a basket of currencies. The Danish krone rose from Dkr3.475 to the mark to just under Dkr3.84 on expectation of a 'yes' vote in the Maastricht referendum, but remained bottom of the exchange rate mechanism grid.

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