Manufacturing industry falls back into recession

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The Independent Online

Economic growth accelerated in the final months of last year, despite official data showing that the manufacturing sector plunged into recession.

Economic growth accelerated in the final months of last year, despite official data showing that the manufacturing sector plunged into recession.

The fourth-quarter GDP figure beat City forecasts, shattering hopes of a cut in interest rates next month. The first estimate for the quarter put growth at 0.7 per cent, above the trend growth rate of the economy and faster than the 0.5 per cent in the third quarter.

This took the growth rate for 2004 as a whole to 3.1 per cent, the strongest for four years and inside the Treasury's forecast range of between 3.0 and 3.5 per cent that was derided when it was published two years ago. It marked the 50th consecutive quarter of expansion. Paul Boateng, the Chief Secretary to the Treasury, said: "On the basis of the latest information the UK has entered 2005 on course to continue its record period of growth."

Hopes of a rate cut were further dented by the minutes of this month's meeting of the Bank of England's Monetary Policy Committee, published yesterday, that revealed there was no talk of the need for lower rates. Adam Cole, at RBC Capital Markets, said: "The MPC has shown a consistent bias toward tightening when growth is above trend."

The pound surged against the euro and the dollar on the upbeat data.

The Office for National Statistics said the services sector, which accounts for almost three-quarters of the economy, grew 1.0 per cent on the quarter. All sub-sectors expanded, with growth led by above-trend rises in business services and finance and transport and communication. This offset a 0.2 per cent fall in manufacturing, which was the second successive quarterly fall - meeting economists' rough definition of recession.

However, the figures angered business groups, whose private surveys have pointed to modest growth over the second half of the year. Steve Radley, at the EEF, the manufacturing organisation, said: "These figures remain at odds with what is actually happening on the ground. While companies may be experiencing tougher conditions this year, 'recession' is not a word that manufacturers would currently recognise."

The minutes of the MPC meeting two weeks ago, when it left rates unchanged, showed the committee expected fourth-quarter GDP to come in close to trend. "In the absence of significant news, members concluded that no change in the repo rate was appropriate this month," they said.

Analysts said it was significant there had been no repeat of the discussion of a rate cut in December's minutes. "The tone of the discussion hinted that rates are likely to remain on hold for a while," Lorenzo Codogno, at Bank of America, said.

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