House prices rise at fastest for 12 months

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The manufacturing recovery gathered pace in May while the surge in house prices showed no signs of abating, according to separate surveys published yesterday.

The CBI said that order books hit a six-year high, boosted by a continued recovery in demand from export markets.

Meanwhile, Nationwide said that house prices rose by 1.9 per cent in May, putting the annual rate of growth at 19.5 per cent, its fastest in a year. This compared with annual house price inflation of 18.9 per cent in April.

The upbeat CBI survey of manufacturing was in sharp contrast to gloomy official figures from the Office for National Statistics, which show falling output. The divergence in views has caused consternation on the Bank of England's Monetary Policy Committee, which has raised interest rates three times in the past seven months.

The CBI's monthly industrial trends survey showed 24 per cent of businesses reporting order books above normal in May, while 23 per cent said they were below, giving a balance of +1. That compared with a balance of -14 in April and was the highest level since February 1998.

The ONS reported a sharp slowdown in overall economic growth to 0.6 per cent in the first quarter. But the CBI raised its growth forecast for this year to 3.2 per cent from the 3.0 per cent it predicted three months ago.

However, it said the rosy outlook could be at risk from high oil prices and financial market instability and called on the Bank of England to continue to raise interest rates only gradually.