Industry expects brake on output

MANUFACTURERS expect to increase output at a slower pace during the next four months, according to a monthly survey by the Confederation of British Industry.

The findings came as Eddie George, Governor of the Bank of England, told a business audience that the interest-rate rise was good for the economy. Industrialists criticised the increase in the cost of borrowing last week, saying it could halt economic recovery.

Mr George cited past failures to control inflation and said any suggestion the authorities might be lax on inflation could bring forward price increases. 'The risk, on the other hand, that an interest- rate rise now would seriously stall the overall expansion seemed comparatively small.'

Mr George addressed the business community's negative reaction to higher rates. 'If by acting sooner rather than later we can keep the economy growing at a sustainable pace and avoid the need to bring it eventually to a grinding halt, I will still hope one day to persuade you that timely increases in interest rates are not a cause for gloom and despondency, but a natural part of a benign process of stabilisation.'

The CBI's survey, published today, found that 34 per cent of the firms questioned - mostly before the 12 September rise in base rates - expected to increase output, while 11 per cent expected production to decline. The balance, 23 per cent, is lower than the six-year high of 30 per cent reported in August.

A positive balance of 2 per cent reporting order books above normal had slipped from 4 per cent in the previous month's survey. The balance with above-normal export orders had also fallen slightly.

The balance of firms expecting to raise prices remained at 15 per cent. Two-thirds expected to leave prices unchanged during the next four months. The survey showed no sign of price increases picking up.

Separate statistics showed engineering sales and motor vehicle production enjoyed strong gains during the summer. Sales by the engineering industry were 3.5 per cent higher in the three months to July than in the previous three months, and 12.5 per cent higher than a year earlier.

Motor vehicle production was 4.3 per cent up in the three months to August, and 8.6 per cent higher than a year earlier. Compared with last year the biggest advances were in car production for export, up 17.6 per cent, and commercial vehicle output, which was 45 per cent higher in June to August than in the same months in 1993.