Shares surge as jobs and output data ease rate fears

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The Independent Online

Manufacturing industry expanded steadily last month, according to figures published ahead of next week's vote on interest rates by the Monetary Policy Committee.

Manufacturing industry expanded steadily last month, according to figures published ahead of next week's vote on interest rates by the Monetary Policy Committee.

Most analysts expect no change in the cost of borrowing on Thursday. But some warned the recent fall in the pound and continuing economic growth pointed to a rate rise either this month or next, after August's 5:4 vote to leave the level unchanged at 6 per cent.

Across the Atlantic, the danger of an increase in US interest rates also appeared to recede further after figures showed an unexpected drop in employment last month, while manufacturing activity declined for the first time in 19 months.

Shares reacted positively on both side of the Atlantic with the FTSE 100 closing 122 points higher at 6,795 and the Dow Jones up 80 at 11,295 in late afternoon trade.

Activity in manufacturing was little changed in August, the 17th consecutive month of expansion, according to yesterday's survey from the Chartered Institute of Purchasing and Supply. The index dipped to 51.7 from 52.0 in July.

Output increased at a faster rate than the previous month, orders rose at a slightly slower rate, and planned employment recovered. The survey reported strong growth in demand, and a boost to export orders from the decline in the pound's exchange rate against the dollar.

Richard Iley, UK economist at ABN Amro, said earlier predictions of a recession in manufacturing had been "wildly overblown".

The report noted that manufacturers had been cutting their inventories to improve efficiency, and streamlining their workforces. It also showed that prices paid for materials rose at a much slower rate, suggesting increased activity did not pose a strong inflationary threat.

In the US, the number of people in non-farm jobs fell by 105,000 after a 51,000 dip in July. The August decline included the loss of 158,000 temporary jobs related to the US census, and strike-related layoffs.

The unemployment rate ticked up to 4.1 per cent, although the pool of available labour - used as an indicator of jobs market tightness by Alan Greenspan - declined from 10.13 to 10.04 million.

The figures boosted US Treasury bonds and also helped the euro recover from its earlier lows against the dollar.

It climbed to 90 cents soon after the news, reversing some of the decline to a low of $0.8837 after the ECB's quarter-point rate rise on Thursday. Analysts firmly predict further increases in European interest rates in the months ahead.

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