Industry woes ease rate pressure - Business - News - The Independent

Industry woes ease rate pressure

The continued weakness in manufacturing revealed by the latest gloomy survey from the Confederation of British Industry would ease the pressure on the Chancellor to raise base rates, City analysts said yesterday.

"It is inconceivable that the Chancellor will raise interest rates while manufacturing is this weak," said Simon Briscoe at the investment bank Nikko.

Michael Saunders at Salomon Brothers said the cost of borrowing would not fall because of signs that consumer spending and the housing market were picking up, but he added: "Base rates will probably stay low for an extended period."

The CBI's quarterly survey showed that as many firms had reduced output as had increased it in the past four months. It was the first zero output balance since October 1993. Weaker exports lay behind the disappointing performance.

Firms did manage to run down stocks slightly, and a positive balance of 14 per cent of them expect output to rise during the next few months. In addition, investment plans remained resilient, with a small increase in the balance of firms planning to invest more.

However, Andrew Buxton, chairman of the CBI's economc affairs committee, said: "Previous surveys have shown that expectations of a recovery in manufacturing demand and output can be disappointed."

Output for the home market fell for the third successive survey, but it was export deliveries that were particularly disappointing. Although a balance of 17 per cent said in the last survey that they expected higher rather than lower exports, the actual balance turned out at only 5 per cent. Optimism about export prospects in the year ahead has fallen dramatically during the past 12 months.

Business confidence fell for the fourth survey in a row, the first year- long run of increasing pessimism since mid-1991, at the depth of the recession.

The balance of firms planning to axe rather than add jobs was minus 14 per cent, the lowest for two years. The reduction was a bit less than had been expected, but firms are planning more job cuts in coming months. The biggest job losses were concentrated among the biggest firms. Those with under 200 staff reported a small increase in employment levels, and plan to continue increasing employment. By sector, job losses were sharpest in the consumer goods industries.

The survey brought good news on the outlook for prices. The balance of firms expecting to raise prices was only 10 per cent, compared with 18 per cent a year ago. The reported increase in unit costs was the smallest for more than a year, and the balance expecting costs to rise rather than fall during the next four months is zero.

A separate survey from the Royal Institute of Chartered Surveyors said the construction industry was "delicately balanced" between continued recession and the prospect of modest recovery.

Its workload fell by 2 per cent in the first quarter but confidence levels in the expected workload have improved for the last two quarters. A net balance of 10 per cent expect an improvement over the next year.

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