Growth abroad helps industrial output increase for third month

Signs that stronger global growth is dragging Britain's industrial sector out of recession emerged yesterday after the government announced that output grew for the third month running in January.

With its best performance in four years, industrial production, which includes manufacturing and energy output, beat forecasts with a 0.4% rise on the month.

Manufacturing alone also enjoyed its third successive month of growth - for the first time since last spring - with a 0.2% rise in output. Despite the recent gain, however, manufacturing output remains 1.4% lower than a year earlier, while industrial production is 1.35% lower.

The data was released shortly before the Bank of England announced it had held interest rates at 4.5% for the seventh month running. Analysts said the industrial production figures would add weight to those on the Bank's monetary policy committee arguing for caution over easing the cost of borrowing. George Buckley, a Deutsche Bank economist, said: "Finally, we are seeing some better signs from the UK manufacturing sector."

But he fears that firms may not be able to keep up the pace. "With demand for investment goods in the UK seemingly sluggish, there are uncertainties about how long manufacturing output can continue to grow at the rate it has over the past three months, especially if the consumer fails to regain sufficient momentum and the global economy weakens towards the end of the year."

But Stephen Radley,.....continued below

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chief economist at the Engineering Employers' Federation, was more upbeat: "The picture for manufacturers has picked up since the back-end of last year, with growth prospects at home and in the eurozone now being translated into firm orders."

Ross Walker, at Royal Bank of Scotland, said that the better industrial figures, with strong data from the services sector, should mean robust overall economic growth in the first quarter, which will make the Bank of England reluctant to cut interest rates further. The Bank made no comment about its interest rate decision yesterday but has said it expects a solid recovery in the economy this year and inflation to remain at its 2% target.

Most City economists expect rates to remain steady for much of the year, although some think that falling inflation could prompt another rate cut or two from the Bank later in the year.

Other data out yesterday showed the UK goods trade deficit narrowed to £5.73bn in January as a gain in the trade balance with the European Union outweighed a record non-EU deficit of £3.7bn.

Much of the improvement in the balance was due to falling imports. But manufacturing export volumes are up 13.4% year-on-year, suggesting manufacturers are benefiting from a stronger global economy but struggling at home.

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