Increase in factory output sparks call for interest rate rise

A leading independent think-tank called on the Bank of England to raise interest rates today as official figures showed that UK manufacturers have enjoyed its longest period of unbroken growth for four years.

A leading independent think-tank called on the Bank of England to raise interest rates today as official figures showed that UK manufacturers have enjoyed its longest period of unbroken growth for four years.

The National Institute for Economic and Social Research said its estimates showed overall economic output grew at 0.6 per cent in the three months to February, following growth of 0.8 per cent in January.

"These figures, taken in conjunction with other recent data, point to the need for a further increase in interest rates," Martin Weale, its director, said. "It think it is unlikely but I would be keen for it to happen tomorrow." His comments came as official figures showed that the output of the manufacturing sector rose by 0.2 per cent on the month.

The Office for National Statistics said the sector had now enjoyed five quarters without a fall, its longest such period since the end of 2000. Annual growth in manufacturing is now running at 1.4 per cent, its fastest pace since June 2002.

But industrial production, which includes the oil gas industry and the public utilities, suffered a 0.2 per cent fall while the trade gap widened, pointing to a possible cut in the estimate of GDP growth this month.

Analysts in the City said that on balance yesterday's data would have little impact on the discussions by the Bank's Monetary Policy Committee, which is expected to leave interest rates on hold today.

Paul Dales, at Capital Economics, said: "The data leave the UK's external sectors looking very weak and lend support to our view that they will not be able to compensate for a slowdown in the domestic economy this year. With the external sectors likely to remain a drag on overall economic growth in the foreseeable future, an interest rate rise in April or May is not a done deal either."

The outlook for the economy suffered a separate blow as oil prices hit an all-time peak in London and came within a few cents of a record in New York. Brent futures climbed to $54.04 a barrel, up $1.20, before slipping below $54.00. In New York, US crude oil futures surged more than a dollar to just 2 cents below the $55.67 record struck last October, which was the highest since the exchange introduced crude oil futures trading in March 1983.