UK recovery gathers pace

THE SCENE was set for an upbeat Budget by new figures yesterday suggesting the economic slowdown is easing. Manufacturing output rose for the first time in six months in January, while a survey showed sales on the high street have picked up since the New Year.

A monthly index of GDP, the broadest measure of the economy, published by the National Institute of Economic and Social Research, also pointed to the likelihood the economy will avoid recession. It edged up in February, leading the institute to conclude there is no sign of a decline in GDP.

The rise in manufacturing output in January was just 0.1 per cent, taking it to a level 0.9 per cent lower than a year earlier. Mild weather meant energy output plunged, so total industrial production was down 0.5 per cent during the month.

Most sectors remained weak, with only engineering output up (by 0.4 per cent) in the latest three months. Even so, the figures were better than many economists had feared.

Separate official figures backed the view that industry could be at a turning point. The core prices charged by manufacturers at the factory gate were flat in February for a second month running after falling since the summer. Their year-on-year rate of decline slowed to minus 0.5 per cent.

The monthly British Retail Consortium (BRC) sales survey found the value of total sales was 4.1 per cent higher in February than in the same period last year.

This was lower than January's 5 per cent growth butahead of the subdued figures at the end of last year. According to the BRC, consumers are willing to spend, but only if the price is right. Stores that continued their sales into February fared better than those that ended sales in January.

Meanwhile, investment managers' confidence surged by a record amount last month, according to a Merrill Lynch/ Gallup survey. Interest rate cuts and relative calm in the financial markets has helped restore faith in Britain's economic prospects.

Just over two-thirds of fund managers expect a stronger economy next year, compared to a third in January. As a result, money managers prefer stocks over bonds and have turned buyers of property for the first time since spring last year.

Merrill Lynch also argued that bickering between Europe's politicians and the European Central Bank may have undermined fund manager confidence in EMU. Around 54 per cent believe it is in the UK's interest to join EMU, down from 61 per cent in November 1997. The dollar has replaced the euro as fund managers' favourite currency.