Industry `must live with strong pound'

THE PRIME MINISTER told manufacturers to learn to live with the high pound yesterday as new figures showed the beleaguered sector had turned the corner to recovery.

Tony Blair told businesses that devaluation was "not a solution", despite acknowledging the pain they suffered from the strength of sterling in terms of exports. "I know business is still finding it tough, especially manufacturing industry," he told a conference of venture capitalists. "I understand these concerns though I do believe continuous devaluation is not a permanent solution to our economic problems."

Mr Blair was speaking as official data showed manufacturing output rose 0.2 per cent in May against 0.1 per cent in April and a forecast of 0.1 per cent. The rise took the three-monthly growth trend in manufacturing to 0.5 per cent, its highest level for 11 months, the Office of National Statistics said.

The ONS said the trend performance for manufacturing was running at around minus 0.5 per cent, an improvement on the minus 1.5 per cent in April. The wider measure of industrial production, which includes oil, gas and utilities, rose 0.1 per cent.

A separate survey from the Engineers Employers Federation said output and orders fell in the latest three-month period but at a slower rate.

David Giachardi, EEF director of policy, said: "We may have passed the worst point of the current economic cycle. People are learning to live with the level of the pound.

"However, companies are still reticent about committing themselves to essential investment and we would urge the Bank of England to hold rates at or around their current level for as long as possible."

The Bank's Monetary Policy Committee last month cut rates by 25 basis points to 5 per cent and is expected to keep them unchanged after it meets today and tomorrow. Economist Richard Iley of ABN Amro said: "Given the growing body of evidence that the domestic economy is on the mend, the MPC will be loath to risk further stimulation."

Dharshini David agreed that rates would be kept on hold: "These data indicate that manufacturing will boost growth in the second quarter, pointing to a stronger overall GDP figure."

Estimates from the National Institute of Economic and Social Research showed GDP rose 0.4 per cent in the three months to May and was projected to show 4 per cent growth in the second quarter of the year.

Meanwhile, confidence is still rising among Britain's service companies with hopes of a strong rise in business this summer, according to new research.

The Confederation of British Industry's quarterly survey showed optimism continuing to grow but at a slower rate than in March. "But although business and professional firms are more upbeat about expansion ... than those reliant on the consumer, they face pressure to cut prices which is likely to hamper the growth in profits," said Sudhir Junankar, the CBI associate economics director.

The car industry also has reason for optimism. New car registrations surged last month, the Society of Motor Manufacturers and Traders said; 196,442 were registered in June, up 15.7 per cent from June 1998. So far this year 1.19 million have been registered, a 4.8 per cent gain on last year.