Manufacturing output continues to grow despite the strong pound

THE INDUSTRIAL recovery gained pace in October, according to new figures yesterday, with annual growth of manufacturing output shrugging off the impact of the strong pound to climb to its highest for two years.

Official statisticians said manufacturing output is growing at a trend rate of 3 per cent, up from 2 per cent last month. They revised higher the estimated level of output in September.

There were also signs of continuing strength in the housing market, with a survey from the British Retail Consortium yesterday showing rapid growth in sales of goods for the home, including furniture, last month.

Total high street sales grew at a similar pace to October, taking the underlying three-month trend higher. But the BRC claimed there was no sign of a significant upward trend, while prices were down compared with last Christmas.

City experts believe there is a small chance the MPC will raise interest rates after its meeting this week, with some signs of unexpected strength in the economy. Along with the strong recovery in industry, the housing market has shown signs of overheating and inflation is rising in the service sector.

But most think there will be no move until after the New Year. The underlying inflation rate remains low, thanks to a price squeeze on the high street and falling energy and water prices.

"A rate increase is not necessary. The evidence has been mixed, and in industry quite a bit of the strength is due to stockbuilding," said Robert Barrie, UK economist at CSFB.

The National Institute of Economic and Social Research said yesterday that growth in industry had probably slowed slightly in November. Its estimate of the rise in production in the three months to November was 0.6 per cent, down from 1 per cent, trimming the estimated growth in GDP to 0.8 per cent from 0.9 per cent.

Yesterday's figures showed a small rise of 0.1 per cent in manufacturing output, taking the year-on-year growth rate up to 1.3 per cent, the best since October 1997. The recovery has been recent, with the level of production climbing 1.1 per cent in the latest three months alone.

Industrial output, which also includes electricity, gas and water production and oil extraction, rose 0.2 per cent during October. The annual growth rate climbed to 1.5 per cent, its fastest since June 1998.

The strongest performers in the latest three months have been chemicals and electrical engineering. But even laggards such as textiles have shown an upturn compared with earlier this year.

Output of the chemicals industry jumped 2.6 per cent in October, and its level in the August-October period was 5.5 per cent higher than a year earlier. Engineering production fell slightly in October but was up 1.7 per cent compared with the previous three months. Textiles production edged up 0.2 per cent, although it remained 4.1 per cent down year-on- year.

Most economists predict industry will continue to expand at a healthy pace, with export demand in Europe and Asia reviving.