Manufacturing revival unlikely to sway Bank

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A recovery in Britain's recession-hit manufacturing sector appears to be well under way while the consumer economy shows little sign of embarking on the slowdown needed to reassure the Bank of England.

A raft of figures yesterday showed that industrial output and high street sales rose last month while households took on even more debt in February than had been thought.

"Today's brace of indicators gives a further indication that the industrial recovery is coming through at a time when consumer spending remains strong," said John Butler, UK economist at HSBC.

Although the data are unlikely to alter the Bank's decision on interest rates tomorrow – forecast as no change – their strength has fuelled talk they will have to rise, possibly as soon as next month.

A key survey of manufacturing firms showed the sector grew for a second month in a row in March and at a faster rate than in February.

The index produced by the Chartered Institute of Purchasing and Supply and based on a survey of 620 firms found activity rose at its fastest pace for 13 months.

The improvement was driven by a sharp rise in output volumes, which are running at a two-year high.

But businesses remained cautious, noting that many of their clients had merely been replacing stocks, which were run down in previous months.

"Although the index has moved up for the second month running, there is a level of uncertainty. Spring may be in the air but manufacturing is still not blooming," said David Rich-Jones, CIPS' chairman.

However consumers' demand for debt continued unabated according to figures from the Bank of England.

Total lending rose £7.0bn, including a £5.2bn increase in mortgage lending and a record £1.9bn in unsecured lending. The number of mortgage approvals rose by a record 115,000.

Although this had been previewed in figures from the major banks, the final figures were larger than had been expected in the City.

"All together, these data are consistent with house price inflation heading for 20 per cent in the next few months," said Danny Gabay, at JP Morgan.

"We do not expect anything other than for rates to be left on hold this week but the pressure for a May hike continues to build."

The rise in consumer borrowing helped to fund another bumper month for high street retailers, according to the CBI.

The employers' group said the number of firms reporting rising sales outnumbered those suffering a fall by 31 per cent. This was the third successive slowdown from a peak of 48 per cent in December but retailers are forecasting another strong month in April.

Meanwhile a manufacturing survey for the eurozone showed that the sector enjoyed its first month of growth in March since the downturn began in February 2001.