Manufacturing output rising at fastest rate in six months

Britain's manufacturing industry showed unexpected resilience yesterday when a survey revealed the fastest growth in the sector for six months. Factory output and new orders reached the highest levels for this year, while inflationary pressures increased, cementing expectations that the Bank of England will leave interest rates on hold at its monthly meeting on Thursday.

The Chartered Institute of Purchasing & Supply/RBS survey showed manufacturing activity accelerated last month, with the index rising to 51.5, the highest since March and compared with 50.3 in August. Economists had expected to see stagnation at the 50 mark that divides expansion from contraction.

Strong growth in UK and export order books encouraged companies to expand production. Manufacturers won new business from the US, the rest of the EU, east Asia and the Middle East.

While businesses continued to shed jobs to offset higher oil and other costs, the rate of job cutting fell back and was the least marked for six months.

The figures will be welcome news for Gordon Brown, who suffered a body blow last week when official figures showed economic growth had slipped to its weakest rate in 12 years. The news followed the Chancellor's admission that he would miss his much-derided forecast of growth of between 3 and 3.5 per cent this year. The gloom was compounded by survey figures showing high street sales falling at the fastest rate in at least 22 years.

Analysts said yesterday's report showed that manufacturers are far more dependent on the global economy than on the fortunes of the UK high street. Philip Shaw, the chief economist at Investec, said: "The strength of orders suggests a recovery in the official manufacturing figures and the buoyancy of export orders provides further confirmation of signs of a pick-up in continental Europe."

The Government's figures for manufacturing output in August, released on Thursday, will shed more light on whether manufacturing really has turned the corner.

The EEF manufacturers' lobby group, led by Martin Temple, welcomed the survey's findings. Its chief economist, Steve Radley, said: "While the economic outlook remains uncertain at home and abroad, these figures confirm our view that manufacturing is in far ruder health than the official figures have been suggesting."

Worryingly for the Bank, which is keeping a close watch on rising inflationary pressures in the economy, manufacturers' prices rose at the fastest rate in seven months, reflecting high oil costs, according to the survey. The rise will not go unnoticed at the Bank's Monetary Policy Committee meeting this week where the hawks, including the Governor, Mervyn King, are already concerned about the risk of a further rise in inflationary pressures. Inflation, measured by the consumer price index, has hit a nine-year high of 2.4 per cent, partly because of the spike in oil prices.