Rising prices fail to offset sharp production increase: High street prospects diminish after strong Christmas sales

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MANUFACTURERS stepped up production to a six-month high in November, but they kept price increases relatively subdued, according to figures published yesterday by the Central Statistical Office.

The Confederation of British Industry also reported a healthy rise in high-street spending over Christmas, compared with the same period in 1992. The net number of retailers reporting higher sales in December than a year ago was bigger than in any month since April 1990.

'Looking ahead, prospects for retailers are not as good. Expectations for this month are the weakest since last May, pointing to a more modest growth in high-street demand,' said Sudhir Junankar, deputy economic director of the CBI.

Factory production rose 0.3 per cent between October and November, largely reflecting a rise in output from the chemicals industry and increased cigarette production ahead of the November Budget. The CSO raised its estimate of the trend increase in factory output to 1.5 per cent a year from 1 per cent in the previous three months.

The CSO also revised its estimate of the increase in output in October from 0.3 to 0.5 per cent, reinforcing confidence in the City that manufacturing output is firmly heading upwards again. But factory output is now believed to have been slightly lower than first estimated between July and September because the rise in the value of manufactured exports in those months is thought to owe more to higher prices than higher output.

Ian Shepherdson, of Midland Global Markets, said the figures showed that industry had shaken off its malaise, but added that he was 'very worried about demand for manufactured exports being hit by the level of sterling'. The recent strength of the pound also helped cut the cost of industry's fuel and raw materials. Input prices rose by 1.7 per cent last month, largely reflecting the usual winter rise in electricity prices. Seasonally adjusted, input prices fell by 0.1 per cent to a level 1 per cent lower than a year earlier.

Factory gate inflation, the annual rise in the prices manufacturers charge for their output, rose from 3.6 per cent in November to 4 per cent in December. Budget increases in tobacco and fuel duties would have added 0.7 per cent to output prices but the actual rise was only 0.5 per cent because not all the rise in petrol duties was passed on to customers for petroleum products.

Excluding Budget measures, factory gate inflation would have fallen to 3.3 per cent. Excluding food, drink, tobacco and petrol prices, factory gate inflation dropped from 3.1 to 2.9 per cent, reflecting the smallest seasonally adjusted rise in underlying output prices for 14 months.

The figures made little impression. The March short sterling futures contract rose from 94.65 to 94.67, suggesting a further cut in base rates is far from inevitable.

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