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To: maceng2 who wrote (569)	2/10/2004 1:37:35 PM
From: maceng2	Read Replies (1) \| Respond to of 1417

Output figures cast doubt on strength of recovery IAN McCONNELL February 10 2004 theherald.co.uk UK manufacturing output fell for the second month running in December, according to figures yesterday from National Statistics which wrongfooted the City and prompted warnings that further interest rate rises could snuff out the sector's tentative recovery. National Statistics' numbers were in stark contrast to upbeat survey evidence on manufacturing from the Chartered Institute of Purchasing and Supply and the Confederation of British Industry. The official figures showed a 0.1% fall in manufacturing output in December – confounding City expectations of a rise of 0.5%. In November, there was a 0.6% decline. Manufacturing output for the fourth quarter was up just 0.2% on that during the three months to September, but it was 1.1% higher than in October to December 2002. David Kern, economic adviser to the British Chambers of Commerce, said: "The sector is still weak and, after a long and painful recession, the welcome signs of recovery we saw could easily be derailed and go into reverse. "It is critically important to avoid further interest rate increases until the recovery is more secure." Kern highlighted another barrier to manufacturers' competitiveness in the form of sterling's strength not only against the US greenback but also in relation to Asian currencies, notably the dollar-linked Chinese renminbi. Kern said that UK manufacturing output was 4% less than its 2000 level and claimed the sector "still faces serious dangers". Paul Dales, UK economist at Capital Economics, said of the December manufacturing data: "Overall, these numbers are clearly disappointing and suggest that the industrial sector may already be struggling with the double impact of a higher pound and rising interest rates. As such, there is a danger that, as the MPC continues to raise interest rates to slow down the consumer and housing booms, the industrial recovery will be snuffed out altogether." The Bank of England last week raised UK base rates by a quarter-point to 4%. It will elaborate on its reasoning in its quarterly inflation report due tomorrow. The manufacturing sector was dragged down in December by a 1.5% tumble in output of the electrical and optical equipment industries, and a 1.1% fall in chemicals. In stark contrast, output of the food, drink, and tobacco industries jumped 1.3%. Simon Rubinsohn, chief economist at stockbroker Gerrard, said: "The data was particularly disappointing in the wake of a series of positive surveys from both the CBI and the Chartered Institute of Purchasing Managers." Rubinsohn cited the facts that the pound had also made some gains recently against the euro, and that the eurozone is the major destination for UK manufactured exports, as possible reasons for manufacturing weakness. However, he then highlighted a possible structural element. Citing the 1.5% fall in an electrical and optical component sector which includes technology and telecommunications, Rubinsohn said: "Perhaps the hard fact is that the manufacturing sector in the UK is, in crude terms, ex-growth." He added that it was improbable that other parts of manufacturing would provide the impetus for a strong rebound in output if the more dynamic area of the sector remained in decline, suggesting it was right to have "only modest expectations" about the scale of the manufacturing recovery. Trevor Williams, chief economist at Lloyds TSB Financial Markets, believed that the stronger evidence in manufacturing surveys would eventually feed through to official figures. However, he said that yesterday's numbers supported his view that base rates would not rise beyond 4.5% by the year-end.