Small price rises odd to pressure for cut in rates: Latest official figures show reduced output from British manufacturers

KENNETH CLARKE faces growing pressure to cut interest rates again after official figures yesterday showed manufacturers cut production in the three months to October and they are helping to subdue inflation with small price rises.

A good high-street inflation figure tomorrow and a cut in German interest rates on Thursday could herald another cut in British rates before Christmas, City economists believe. But most expect the Chancellor to wait until next year before cutting rates again.

Rupert Pennant-Rea, Deputy Governor of the Bank of England, told the Institute of Directors that interest rates might have to rise if companies took advantage of greater competitiveness to raise prices rather than boost sales. But he hinted that this would not rule out a cut in the short term.

Manufacturers did not change the price of their output on average last month, according to the Central Statistical Office. Output prices were 3.6 per cent up on a year earlier, down from 4 per cent in the year to October. Industry's fuel and raw material costs fell for the fourth month running in November, after taking account of seasonal factors. Fuel and raw material costs are 1.8 per cent lower than a year ago.

The CSO said manufacturers raised their output by 0.1 per cent in October, but that output in the three months to October was 0.2 per cent down on the previous three months. The Treasury, which warned recently that the recovery may not continue smoothly, said output appeared to be 'holding up despite weak export markets'.

Michael Portillo, Chief Secretary to the Treasury, told the Treasury Select Committee yesterday that it would be too expensive to link pensions to earnings to provide a reasonable standard of living in retirement. 'If people in their early years of life do not consider the difficulties that lie ahead, they will not be making prudent provision,' Mr Portillo warned.

He said welfare would be under constant review to ensure the Government hit its spending targets.