Britain's two-speed economy was starkly illustrated yesterday as new figures showed that industry is suffering its steepest downturn since the recession a decade ago while new car sales have hit an all-time record.
Industrial production fell by 1.1 per cent in October to stand 4.2 per cent lower than a year ago the biggest annual fall since August 1991 when Britain was in the grip of the last recession. At the same time, figures from the Society of Motor Manufacturers and Traders showed that 2001 has become a record year for new car registrations with a month of the year still to go. The British Retail Consortium also reported that price deflation in the high street was helping to keep consumer spending surging ahead.
Although the Bank of England kept interest rates on hold this week, economists said that the conflicting messages emerging about the health of the economy were likely to make the outcome of next month's meeting harder to call.
The decline in industrial production was much worse than expected and was blamed on steep falls in output in the electrical, optical, metals and general machinery sectors.
The National Institute of Economic and Social Research added to the gloom by estimating that the economy grew by just 0.1 per cent in the three months to the end of November. Martin Weale of the NIESR said the slowdown justified the interest rate reductions implemented by the Bank since 11 September. But he added that it was still too early to say whether further rate cuts would be needed.
Ian Fletcher, chief economist at the British Chambers of Commerce said the latest industrial production figures clearly illustrated the pain that the manufacturing sector was experiencing. "With inflationary pressures under control, the Bank has plenty of room for manoeuvre and may need to cut rates again in the New Year to help businesses recover."
But John Butler, at HSBC, cautioned against a further rate cut in addition to the seven reductions so far this year by the Monetary Policy Committee. "One thing this year has shown is that interest rates do very little to help the industrial side when the global economy is so weak. In our view cutting rates would only destabilise the economy further."
New car sales rose by 13 per cent in November to 184,278, taking the total for the first 11 months of the year to 2.33 million beating the previous full-year sales record of 2.31 million set in 1989. Motor industry experts now expect the total for the year to surpass 2.4 million quite comfortably.
The surge in car sales has been driven by unprecedentedly strong demand from private buyers who have accounted for nearly half the market this year. Historically, they have accounted for about one-third of total sales.
Christopher Macgowan, the SMMT's chief executive, said: "There is no sign of a slowdown and showrooms throughout the country are full."
The BRC's latest shop price index shows that prices decreased by 0.13 per cent in November compared with a 0.09 per cent fall in October. It said the price of non-food items had risen slightly last month but food had fallen in price with the decrease in fruit prices being "significant".
Bill Moyes, the BRC's director-general said: "There is evidence that, despite strong sales growth, the UK was not experiencing inflationary pressure from the high street. Ensuring consumer confidence remains high must be a top priority if the Government wants to continue enjoying the economic benefits of this situation."Reuse content