Industry order boom clears way for rate rise

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The Independent Online

New figures show that manufacturing industry vaulted to a fresh four-year high last month, clearing the way for a rise in interest rates this week, according to economists.

A surge in new orders offset a slight slowdown in output to leave a key index of factory activity at its highest level since December 1999.

The survey, by the Chartered Institute of Purchasing and Supply, showed orders books rose from both domestic and overseas customers while companies had to run down their stock levels to meet demand. Roy Ayliffe, a director at CIPS, said: "Firms continued to be pushed to meet rising demands driven by the growth levels in the manufacturing economy."

The upbeat tone of the survey pushed the pound close to 10-week highs as expectations hardened for a rate rise on Thursday.

CIPS' survey of the services sector published tomorrow will be the last important piece of economic data before the Bank of England's Monetary Policy Committee sits down for its two-day meeting.

"The survey eliminates another risk from Thursday's rate decision when a quarter-point hike is widely expected," said George Buckley, UK economist at Deutsche Bank.

The survey also showed that prices charged by manufacturers rose at their fastest rate for four years - although not as fast as the increase in raw materials costs. There was further good news, with companies taking on more staff for the second month in a row. If this feeds through to the official figures it will mark the end of a six-year fall in manufacturing employment.

CIPS said it was the first time in five years that manufacturing had been a net recruiter for two successive months.

"Companies are planning to increase employment and capital expenditure over the next year, the first time they have been prepared to do that for several years now," said Chris Williamson, an economist at NTC Research, which conducts the poll.

The report said companies cited continued strong demand from the US, China and Japan despite the fall in the dollar. "The strength of global demand at the moment is offsetting any exchange rate effects," Mr Williamson said.

The eurozone's manufacturing sector grew a little faster in January thanks to buoyant worldwide demand, but the euro's strength forced companies to cut jobs to stay competitive, an equivalent survey showed. The survey of 3,000 companies showed overall manufacturing activity at a three-year high and robust growth in new orders. However manufacturers cut more jobs than they created.

Across the Atlantic, US manufacturing surged to a 20-year high at the start of the New Year as factories scrambled to keep up with demand. The closely watched Institute for Supply Management's manufacturing index showed that new orders, a key indicator of future growth, hovered at the best levels since the early 1970s.