Share prices catch holiday spirit as economy perks up

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The Independent Online
FRESH SIGNS that the economy is improving after a sluggish winter brought the holiday spirit to share prices yesterday. The FTSE 100 index surged to a new record of 6,399.1 during the day, although it ended up just 34.7 points at 6,330.

There was also an upbeat start on Wall Street, with the Dow Jones index 54 points higher at 9,840 during morning trading. It too fell back later.

New surveys suggested high street sales had picked up in March, while the decline in manufacturing output was easing. Indeed, export orders rose during the month for the first time since October 1997. Even better, analysts concluded that the survey evidence was not strong enough to prevent the Bank of England from cutting interest rates, either when its monetary committee meets next week or in May.

"This does not fundamentally alter the case for lower rates," said Ken Wattret of Paribas.

The monthly survey of purchasing managers in manufacturing showed activity in decline for the 12th successive month. But for the fifth time running the pace of decline had slowed. The index climbed from 45.9 to 47.2, closer to the watershed of 50.

Even more encouraging, there was a small increase in export orders although total orders declined once again. The recent appreciation of the pound puts a question mark over future export orders, however.

Manufacturers are also cutting jobs at a faster pace than ever. The employment index dropped to 44.7 from 45.8.

Peter Thomson, the director general of the Chartered Institute of Purchasing and Supply, said: "Despite the continued decline in overall activity, there are further positive signs of an upturn in the manufacturing sector." Analysts agreed that manufacturing output was probably stabilising. Hopes were boosted by a surge in the US purchasing managers survey from 52.4 to 54.3, defying expectations of an industrial slowdown across the Atlantic.

There were also improvements in similar surveys for Germany and Italy. Both of these key export markets for UK manufacturers were in decline at the end of last year.

Separately, the Confederation of British Industry reported a recovery in retail sales volumes to their highest level since last September. This followed a subdued five months on the high street, according to its survey - which is, however, an uncertain guide to official retail sales figures.

"The trend of solid but not spectacular retail sales growth continues," said Dharshini David of HSBC Markets.

The balance of retailers reporting higher sales volumes over those reporting a fall increased to 14 per cent from 2 per cent in February and minus 9 per cent in January.

But Alastair Eperon, chairman of the CBI's distributive trades panel, said there was little underlying growth. "A further cut in interest rates should be made next week," he said.

Next week will bring additional evidence that could sway the decision of the Monetary Policy Committee on Thursday. This includes the official industrial production figures for February, expected to show another drop in manufacturing output.

Since the last meeting, GDP for the final quarter has been revised down, and official statistics showed a small rise in unemployment and decline in retail sales in February.

Outlook, page 21

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