Rise in factory output is strongest since 1988: CBI survey shows high street sales still failing to live up to retailers' expectations

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FRESH indications of an uneven recovery emerged yesterday after a greater-than-expected rebound in April factory output was coupled with only modest high street sales last month despite continued price discounts by retailers.

Factory output rose by 0.7 per cent in April and brought the rise in the latest three months to 2.2 per cent, the strongest quarterly expansion since November 1988. The Central Statistical Office estimated the trend in manufacturing output growth has risen to an annual rate of 5 per cent - the fastest since May 1989. Output is back to its January 1991 level.

The monthly increase in factory output was significantly better than City predictions and encouraged those looking for a recovery led by manufacturing and exports.

In contrast, the Confederation of British Industry said its latest survey of distributive trades showed that, for the fifth month in succession, high street sales were up just modestly in May compared with a year earlier. Sales levels failed to live up to retailers' expectations for the second consecutive month.

In the financial markets the figures were greeted as evidence that, despite a lacklustre high street scene, recovery was sufficiently strong to rule out another cut in base rates. The FTSE- 100 index of leading shares retreated 15.5 points to 2,870.

During April, factory output was driven higher by a boost to metals output, partly because production of iron and steel was brought forward ahead of maintenance work. Computer production also rose.

In the latest three months, usually a more reliable guide to the underlying trend than the monthly figures, cars and car parts, computers, building materials, plastics and aerospace all contributed to rising output. But chemicals output was curbed by a fall in pharmaceutical production.

However, overall industrial production - which includes both manufacturing and energy output - rose by only 0.6 per cent in the three months after maintenance work reduced North Sea oil production and mild weather held back gas and electricity output.

Oil and gas output dropped 5 per cent in the three months to April while output of other energy and water supply fell 2.8 per cent because of lower gas and electricity production.

The CBI suggested that high street sales by footwear, leather stores and off-licences all fell, clothing was flat and hardware, china and do-it-yourself expanded moderately. All other sectors reported significant growth, especially specialist food stores, bookshops and household goods outlets.

Some 45 per cent of retailers surveyed said their sales were higher while 27 per cent thought sales were down last month. The resulting balance of 18 per cent was little changed from April but below the levels of February and March.

Sales were also thought to be well below normal for the time of year and, despite expectations of a significant rise in sales in June, the CBI warned that previous hopes had proved too optimistic.

However, there were indications that retailers' demand for new supplies was increasing, a development that could lead to further rises in factory output. Orders rose more sharply than at any time since April 1990 and a balance of 14 per cent of retailers thought their stocks were too high compared with sales levels, higher than April, but lower than at any time in the previous 14 months.

Sales by wholesalers also showed lacklustre growth last month, but the volume of orders placed by wholesalers picked up sharply. Stocks were higher than in April but remained low in comparison with previous months.

Confirming recent figures from the industry, the CBI said sales by motor traders fell slightly in May and were well below normal for the time of year. Marginal growth in sales is predicted for June.

The liquidity ratio of total current assets to liabilities of all large industrial and commercial companies was 109 per cent in the first quarter against 110 per cent in the final quarter of 1992.