THE benefits of the consumer recovery are finally starting to trickle down to British industry. Manufacturing activity increased last month for the first time since December, with output returning to its highest level for more than a year, according to the monthly survey of purchasing managers.

The first signs of a pick up in manufacturing coincided with further evidence of slow improvement in the housing market. Both the Halifax and Nationwide building societies reported growth of 4 per cent in house prices over the past year, the highest annual rise since 1991.

Other figures showed the biggest monthly jump in cash in circulation for more than six years in June and continuing rapid growth in consumer credit. Ms Angela Knight, Economic Secretary to the Treasury, said. "Economic life continues to improve."

Yesterday's batch of figures gave a boost to the British government's hopes that the economy will be in peak shape in time for a spring election.

City opinion was divided over whether the Chancellor of the Exchequer, Mr Kenneth Clarke, would slip in another cut in base rates this month, before the evidence of economic recovery gets much stronger.

"I find it difficult to believe he would risk another rate cut now," said Mr David Owen, an economist at investment bank Kleinwort Benson. However, Mr Ciaran Barr at Deutsche Morgan Grenfell said. "He might see an advantage to moving this month. It will be more difficult by September because the economy is recovering."

Mr Clarke will hold his monthly meeting with Mr Eddie George, Governor of the Bank of England, today, followed by a pre-holiday meeting at the end of July.

The purchasing managers' index of activity climbed last month to 50.9, above the watershed between recession and recovery, from 47.6 in May.

Output rose sharply, orders were higher, stocks of finished goods fell and cutbacks in employment were less pronounced than earlier in the year, the Chartered Institute of Purchasing and Supply reported.