Fall in sales and output adds to rate cut pressure

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PRESSURE ON the Bank of England to deliver its third interest rate cut in three months intensified last night, after new figures pointed to continuing gloom both in manufacturing and on the high street.

According to the Office for National Statistics (ONS), manufacturing output fell in October for the third successive month, meaning the sector is experiencing its longest period of sustained decline since the spring of 1991.

The manufacturing sector shrunk by 0.4 per cent during October, with output in the textile and pulp and paper industries suffering particularly sharp falls.

In the three months to October, textile output - now at record lows - declined by 3.9 per cent, the ONS said. Pulp and paper production fell by 2 per cent.

Overall activity in the production industries - which includes mining and electricity supply as well as manufacturing - was unchanged, largely because the cold weather boosted demand for electricity and gas.

Ken Wattret at Paribas said: "The numbers made grim reading yet again. The manufacturing side of things is in a terrible mess. I'd be extremely surprised if there is no move in rates on Thursday."

The intensifying rate-cut speculation sent the pound tumbling almost two pfennigs against the German mark to close at DM2.7697.

Another gloomy retailing survey added to the pressure on the Bank of England's Monetary Policy Committee, which begins its monthly two-day rate-setting meeting tomorrow.

The British Retail Consortium (BRC) said there was as yet little sign of a pre-Christmas pick-up on the high street, with like-for-like sales in November 0.4 per cent lower than at this time last year.

Consumer caution remains very much in evidence, according to the BRC, with sales of luxury goods particularly hard-hit.

However, with more customers in the shops and pre-Christmas sales of computer games, toys and books going well, there is still a chance retail sales will rise in December.

Andrew Higginson, chairman of the BRC economic affairs committee, said: "Customers remain extremely cautious in the face of fears of a recession. The November figure is particularly disappointing as November last year saw the weakest growth in sales of any month in 1997."

Many economists believe the weakness in the manufacturing and retail sectors, combined with growing evidence of a slowdown in services, mean the economy as a whole could contract in the fourth quarter of the year.

According to estimates produced by the National Institute of Economic and Social Research, one of the UK's leading think-tanks, the economy did not grow at all in the three months to November.