Industry stages surprise rise in output

Manufacturing industry mounted a surprise recovery in March, ending three successive months of decline, according to official figures yesterday.

Manufacturing industry mounted a surprise recovery in March, ending three successive months of decline, according to official figures yesterday.

Output grew by 0.4 per cent, double the 0.2 per cent expected by the City and the first rise since November. But the rise did nothing to support the pound, which tumbled below $1.50 for the first time in four years.

In the year to March, manufacturing industry grew 1.6 per cent, compared with a forecast 1.2 per cent. But the first quarter of 2000 saw manufacturing output fall 0.5 per cent. The Office for National Statistics, which compiled the data, halved its estimate for the trend rate of growth from 1 per cent to 0.5 per cent.

The National Institute of Economic and Social Research estimated the growth of the whole economy slowed to 0.3 per cent in the three months to April from 0.4 per cent in March. "The economy is now growing below its trend rate," it said.

Economists said it was too soon to celebrate the revival of the beleaguered industrial sector as the high value of the pound would continue to drag down exports. David Coleman of CIBC markets said: "It will take a significant downward correction in sterling/euro for exporters to regain competitiveness."

The Confederation of British Industry said its own surveys showed there was a danger the recovery could "stall". Its president, Sir Clive Thompson, urged the Government to face up to the impact that the decline in manufacturing had had on particular regions.

Exporters, which have struggled to sell goods into Europe - the UK's biggest trading partner - because of the strong pound gained some relief yesterday. The pound fell sharply as analysts cut their forecasts for UK interest rates on increasing optimism that the Bank of England is near the end of its tightening cycle.

Sterling weakened against the euro, which rose to 60.34p from 60.15p, almost 4p up from recent lows of 56.79p. Against the dollar it tumbled to as low as $1.4933, its lowest since May 1996, from $1.5136. It has lost three cents since Tuesday.

But some economists warned that if sterling carried on falling, rates would have to go back up. David Hillier at Barclays Capital said the trade-weighted index of sterling (TWI) had already fallen fell well below the level used by the Monetary Policy Committee when drawing up its inflation forecast. "With the TWI through the MPC's forecast, the next rise will be sooner rather than later."

Michael Saunders of Salomon Smith Barney, went further, saying that even if the pound remained strong, interest-rate rises were needed to slow domestic demand. "If the pound falls sharply, the Bank will be faced with an urgent need to slow demand quickly, which could require a rather brutal rise in rates," he said.