Hopes rise of end to recession in manufacturing

The manufacturing industry expanded for the second month running in May, according to official figures yesterday that will boost hopes the sector is emerging from recession.

The manufacturing industry expanded for the second month running in May, according to official figures yesterday that will boost hopes the sector is emerging from recession.

Output rose by 0.7 per cent while April's growth was revised up to 1.1 per cent, making that the strongest month for almost three years.

Analysts said the first back-to-back monthly expansion since October 2000 would remove a major obstacle in the way of a rate hike by the Bank of England next month.

However the news was tarnished by another sharp fall on the London stock market, which analysts believe could stay the hand of the Monetary Policy Committee.

Although the figures were higher than forecast, they came as less of a surprise after Tuesday's trade figures revealed a surge in exports in May. National Statistics, the government's data department, said the revival in manufacturing was across the board, with 12 or the 13 sectors enjoying growth.

The strongest sectors were transport equipment, including motor vehicle production, and general machinery and equipment. There were also signs of recovery from the once-booming electrical and optical equipment sector, although this was driven by companies that provided electrical components to motor manufacturers.

National Statistics warned that the figures in May and June would be very hard to interpret because of the Jubilee bank holidays.

The rosy outlook was supported by the National Institute of Economic and Social Research, which estimated the economy grew 1.2 per cent in the three months to June, compared with 0.2 per cent in the first quarter.

But it did not repeat its prediction that rates would rise in August, saying it was "too soon to be confident that the economy will continue to grow at this rate for the remainder of the year".

The FTSE 100 closed down 2.7 per cent, at 4,420, its third consecutive closing loss.