Growth revised up as manufacturing rises

ECONOMIC GROWTH looks certain to be revised up following an unexpected rebound in manufacturing and exports, according to official figures published yesterday.

The pound rose against the euro and the dollar as the strength of the data fuelled speculation that the next move in interest rates would be up. But the Bank of England is expected to keep rates unchanged at 4.75 per cent when it makes its decision at noon today.

Manufacturing output jumped by 0.6 per cent in December, the biggest increase for eight months and double the pace forecast by the City. This took growth for the final quarter of the year to 0.2 per cent.

Industrial production, which makes up 22 per cent of the economy and includes the North Sea and the public utilities, contracted by 0.1 per cent rather than the 0.5 per cent the Office for National Statistics assumed when it published its first estimate of GDP growth. The ONS said figures would alone take GDP growth to 0.8 from 0.7 per cent.

Meanwhile exporters saw a 3 per cent rise in sales driven by a 5 per cent increase in non-EU exports, which hit a record monthly level. The improvement cut December's goods deficit to pounds 4.43bn from the previous month's pounds 4.71bn shortfall - although it was not enough to prevent the UK posting a record annual goods deficit of pounds 57.6bn.

The National Institute for Economic and Social Research, a think tank, said it believed GDP growth would be revised by 0.8 per cent. "That reinforces our view that a further interest rate increase is desirable," said Martin Weale, its director.

But David Kern, the chief economic adviser to the British Chambers of Commerce, said: "Although the [new figures] show dismal manufacturing growth rather than recession, any rate increase could have extremely damaging effects."