Slowdown in growth may be less severe than analysts feared

THE FOG of uncertainty obscuring the outlook for the economy thickened yesterday with better-than-expected trade figures, a survey showing a mixed picture in manufacturing and news of a pick-up in the housing market. The latest batch of evidence suggested growth might be slowing less sharply than some analysts have been braced for.

City experts were uncharacteristically vague about how the Bank of England's Monetary Policy Committee would vote on interest rates next week. "The three members who voted to raise rates in January and February will not have changed their minds. The question is whether another two will have joined them," said Ciarn Barr, an economist at Deutsche Morgan Grenfell.

The split vote on the MPC in the latest two months demonstrated how close a call the interest rate decision has been. The Bank's Inflation Report said the inflation outlook depends on whether overseas trade slows the economy enough to offset strong pay and price pressures at home.

The shortfall between exports and imports of goods narrowed unexpectedly in the latest month. Official figures show trade with countries outside the EU was pounds 777m in the red in January, down from just over pounds 1bn the previous month, while the whole world deficit narrowed from pounds 1.6bn to pounds 1.3bn in December.

However, the unexpected improvement could not disguise the worsening trend in trade, with the deficit jumping to more than pounds 4bn in the final quarter of 1997. The underlying growth of export volumes slowed to a still- robust 7.3 per cent in the fourth quarter but was overtaken by import growth of 9.3 per cent.

Against this disappointing background, the Confederation of British Industry reported an improvement in orders this month. Its survey of industrial trends for February showed domestic orders up although export orders remained weak.

Sudhir Junankar, a CBI economist, said: "Exports are still being hit by the strength of sterling." But he added, "The manufacturing picture is not totally bleak."

Further evidence that the economy remains buoyant at home emerged from the Nationwide's house price index, which increased by 0.7 per cent in February to a level 12.9 per cent higher than a year earlier. The building society said the average house price, at pounds 62,770, has regained its 1989 peak.

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