BRITAIN'S sickly manufacturing sector showed the first signs of recovery in the last four months, the Confederation of British Industry (CBI) said yesterday, with firms reporting both output and orders up in the period.
The CBI's industrial trends survey said total new orders rose at the highest rate for a year during the last four months, mainly due to a modest increase in demand from abroad. And firms reported the first rise in business confidence since April, 1995.
But the CBI, Britain's major industrial lobby, warned against taking a recovery in manufacturing for granted.
"The strength of the expected bounce back in manufacturing demand and output is not a foregone conclusion, with firms expectations disappointed over the past year," said Mr Andrew Buxton, chairman of the CBI's economic affairs committee. He was referring to the "disappointment gap" between firms' generally upbeat expectations in past surveys and the more subdued outcome.
City economists said the more buoyant survey was welcome news for the beleaguered industrial sector, which has badly lagged behind the recovery seen elsewhere in the economy.
They said it narrowly reduced the chances of a rate cut at next week's monthly monetary meeting.
"The probability of a rate cut next week may have fallen, but I don't rule it out altogether," said Mr Jeremy Hawkins, senior economic adviser at Bank of America.
"I still have a sneaking suspicion that the Chancellor of the Exchequer would want to see a clear pick up in the Office for National Statistics (ONS) data notably output before being satisfied."
The latest official data showed the year on year increase in manufacturing output turned flat in May after rising 0.5 per cent in April.
The Chancellor of the Exchequer, Mr Kenneth Clarke, surprised financial markets when he cut rates by a quarter point on June 6th. Minutes of the meeting she went against the advice of governor of the Bank of England, Mr Eddie George.
But despite the sluggish state of manufacturing, the CBI said rates should not be cut further.
I expect that manufacturing output will rise and that the optimism we're showing in the present survey will be carried through which means interest rates should not fall," Mr Buxton said.
The CBI survey showed domestic orders were virtually flat, although demand for consumer goods increased more markedly on the back of strengthening retail sales.
Export orders, which have been weak and partly responsible for the downturn in manufacturing output, picked up modestly, the survey said, and both export and domestic orders are expected to rise faster over the next four months.
