Industry takes a step out of the gloom

THE WORST of the slowdown in manufacturing is over, a new survey suggested yesterday. But the Trades Union Congress urged the Monetary Policy Committee to cut interest rates by half a point tomorrow, warning that the strong pound will otherwise put the recovery at risk.

In April, for the sixth month running, activity in manufacturing climbed closer to the line between contraction and expansion, according to the purchasing managers' survey. Output increased, and new orders were almost flat. "The pain of manufacturers appears to be easing," said Peter Thomson, director general of the Chartered Institute of Purchasing and Supply. But he added that companies were cautious, and the survey showed a further sharp fall in employment levels in industry.

The TUC warned that interest rates must fall to help bring the pound down and save hundreds of thousands of jobs.

As if to add weight to this warning, the pound reached a new high against the euro yesterday. The new currency fell to 65.3 pence, nearly 10 per cent lower than its January peak. The pound's index against a basket of currencies has climbed nearly 5 per cent since the New Year.

Despite the high exchange rate, City hopes of an interest rate cut have ebbed following a series of upbeat figures. Many economists have raised their forecasts for growth this year closer to the Chancellor's 1-1.5 per cent target. Steven Bell, chief UK economist at Deutsche Bank, is one of these. "We have not seen the expected rise in unemployment afte r a year of weak growth, so consumer spending has turned around," he said.

Separate figures yesterday showed a surge in consumer credit in March. Sales of T-registration cars are thought to have boosted the total to pounds 1.25bn from pounds 1bn the previous month.

The housing market is also showing signs of vigour. The average loan passed the pounds 100,000 mark for the first time in March, while total mortgage lending of pounds 3.1bn was the highest since the figures start in April 1993.

The Halifax reported a 0.2 per cent rise in house prices in April. This was lower than March's 1.2 per cent jump, but Britain's biggest mortgage lender said it confirmed the recovery in the housing market.

Some analysts thought the MPC might even so reduce borrowing costs again. Ken Wattret at Paribas said: "The exchange rate is a potential threat to recovery. A rate cut is ... possible."

The MPC cut rates by a quarter point to 5.25 per cent on 8 April.