Calls grow for hold in rate rises as output falls again

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Businesses and trade unions racked up the pressure on the Bank of England to keep interest rates on hold today as new figures showed manufacturing output has now fallen for three months on the trot.

A raft of new data published yesterday highlighted the dilemma the Monetary Policy Committee faces as it decides whether to order another hike in the cost of borrowing.

Meanwhile, the row over the high value of the pound continued as the head of the British Chambers of Commerce traded blows with the Chancellor of the Exchequer.

Output of the manufacturing sector fell 0.2 per cent in February and has fallen 0.5 per cent over the last months. The monthly dip defied forecasts of a 0.3 per cent rise. Eleven out of the 14 sub-sectors experienced a fall with food and drink, machinery equipment and rubber and plastic products bearing the brunt.

There were signs of a slowdown in the consumer economy with house prices and high street sales both falling. Halifax said the price of the average home fell 0.4 per cent, taking annual growth to 13.5 per cent - down from January's peak of 16 per cent.

The Confederation of British Industry said the number of retailers reporting a rise in sales fell sharply last month. Sales growth is now at its lowest level since last November.

The National Institute of Economic and Social Research said it estimated growth rate in the economy slowed to 0.5 per cent over the three months to March from 0.6 per cent in February. "These data show the impact of the weakness in manufacturing," it said.

The only contrary sign came from the monthly survey of the services sector by the Chartered Institute of Purchasing and Supply. It found the index of business activity jumped to its highest level since June 1997 while input prices rose due to higher wages and commodity prices.

Alastair Eperon, chairman of the CBI's survey panel and an executive at Boots the Chemist, said: "The message to the Bank of England must be that interest rates can be left on hold." John Monks, the general secretary of the TUC, said: "A decision to raise interest rates would be a complete misreading of the economic situation. Even more jobs would go under the cosh of the overvalued pound."

Dharshini David, an economist at HSBC, said: "These figures support the case for leaving rates on hold this month." But Nick Stamenkovic at said: "It is conflicting evidence but on balance we think they will raise rates. Manufacturing is clearly suffering but the services sector is doing very well."

Ian Peters, deputy-director of the British Chambers of Commerce, said: "The MPC must keep rates on hold until we get a full analysis of the Chancellor's action in the Budget.