Strong data point to rise in manufacturing

Britain's beleaguered manufacturers will take a first tentative step out of recession tomorrow if official figures confirm that industry expanded in April.

Strong reports from surveys of company managers have led the City to pencil in a rise of 0.6 per cent, after March's shock fall of 0.8 per cent.

Some analysts are expecting a leap of 1 per cent and believe this could help to persuade the Bank of England to raise interest rates in July.

The markets are also eagerly awaiting testimony by the three most senior figures on the Bank, including the Governor, Sir Edward George, to MPs on Thursday.

The CBI said last month that confidence among British manufacturers surged in April to its highest level in more than eight years.

The Chartered Institute of Purchasing and Supply (CIPS) reported that manufacturing demand rose at its fastest for more than two years. Companies reported rising orders from both domestic and overseas customers, whose orders rose at their fastest for five years.

Philip Shaw, the chief UK economist at Investec, which is forecasting 1 per cent growth, said: "Survey evidence was exceptionally buoyant during the month."

Michael Taylor, the UK economist at Merrill Lynch, said "hard evidence" of manufacturing recovery was one of the things the Bank wanted to see before raising rates.

"So far official statistics have failed to reflect this," he said. "We think by August the conditions will be in place for rates to start rising."

Arguments for a more immediate rise in rates will be undermined by a separate survey showing demand for consumer services fell in May.

The CBI said both business value and volumes fell at a sharper rate than in April while they cut their prices and are expected to cut them further in the coming months.

"Consumer spending has been concentrated in the retail sector, linked in particular to the housing boom," Ian McCafferty, the CBI's chief economic adviser, said. "Demand has focused on durable retail goods rather than services, which have also been hit by the downturn in tourism."

This was in stark contrast to its findings on the business and professional services sector, where more companies were optimistic about the future business situation than at any time since the survey began in November 1998.

But this turnaround had not yet translated into profits. The value and volume of business rose and there are strong positive expectations for the next three months.

Steve Edmonds, a partner at Grant Thornton, the accountancy firm which co-sponsored the report, said the UK recovery was being led by the business and professional services sector. "We are currently in the initial stages of this process but it is likely to be a long haul," he said.

Meanwhile EU foreign ministers are today expected to endorse a plan to impose sanctions on a range of US goods if Washington fails to make an adequate compensation offer for its tariffs on European steel. The 15 ministers, meeting in Luxembourg, will discuss a proposal from the European Commission to impose duties worth $300m (£205m) on goods ranging from steel to textiles and orange juice.