Factory orders climb to 9-year high

Orders for British factories hit a nine-year high over the summer, prompting employers to take on staff for the first time since 1998, an upbeat survey published ahead of this week's Bank of England interest rate decision showed. But the latest survey from the British Retail Consortium is expected to indicate that shops had a dismal August, which may persuade the Bank to leave rates alone.

Orders for British factories hit a nine-year high over the summer, prompting employers to take on staff for the first time since 1998, an upbeat survey published ahead of this week's Bank of England interest rate decision showed. But the latest survey from the British Retail Consortium is expected to indicate that shops had a dismal August, which may persuade the Bank to leave rates alone.

The Engineering Employers Federation (EEF) will report today that a poll of 1,200 firms found recovery in output and orders across all regions and sectors, driven by local and foreign demand. "There are no signs yet of rising oil prices or weakness elsewhere in the world derailing the recovery," Steve Radley, its chief economist, said.

The Federation said some firms had managed to raise their prices, but energy costs had hit profit margins and it urged the Bank not to raise rates. "With rising costs and evidence of slowdown in the housing market, now is a good time to pause for breath on interest rates," Mr Radley said.

Most City analysts expect the Bank to leave rates on hold this week, with a growing minority expecting no increase this year.

A separate EEF survey to be published later this month will show a majority of engineers expects a double-digit rise in energy costs next year, with a "sizeable minority" warning of jumps in excess of 20 per cent. Despite that, the EEF raised its forecasts for sector growth to 2.9 per cent this year and 4.2 per cent in 2005. It said manufacturers would shed 100,000 jobs this year, slowing to 70,000 next year.

But Mr Radley said: "If we see these rates of growth sustained, we could be looking within 12 to 18 months at a net increase in jobs. It is not inevitable that the manufacturing workforce will decline year after year."

The survey came as two reports highlighted a marked slowdown in the wider business sector. The CBI said confidence across the service sector had slipped for the first time in a year as rising oil prices and interest rates took their toll. Its quarterly survey, published today, shows that cautious spending has led to the first fall in profitability in a year among consumer services companies.

High oil prices contributed to costs rising at the fastest rate for three years among business and professional firms, knocking confidence to a 15-month low.

A report from the accountant BDO Stoy Hayward said business output had fallen to its lowest level this year. Its output index, which predicts GDP one quarter ahead, also fell in August. However, it said inflationary pressures were rising, pointing to inflation at 2.7 per cent by the end of the year, well above the Bank's 2.0 per cent target.

Peter Hemington, a partner, said: "Rising inflation looks to be a real worry. The Bank may look to raise rates again in the last quarter of the year."