Rise in factory output expected to accelerate

MANUFACTURING output expanded in the majority of Britain's 11 regions in the past four months, and all areas expect production to increase in the coming four months, the Confederation of British Industry said yesterday.

But the CBI also warned that industry was worried that the Treasury was happy to see a rising pound, which could undermine the country's export drive.

Howard Davies, the CBI director-general, said that if financial conditions needed to be tightened as recovery gained ground the Treasury should resort to a rigorous attack on public spending rather than an appreciating exchange rate.

The CBI's latest survey of regional industrial trends, produced with Business Strategies, showed that export orders rose in most regions despite mounting concern in East Anglia, the West Midlands and the North-west over the impact of political and economic conditions abroad on future export demand.

Wales, the West Midlands and the South-east led the overall recovery in output in the first four months of the year. Orders rose most sharply in Wales and the West Midlands, while smaller increases were reported by manufacturing companies in the South-east, Northern Ireland and the North-west.

The survey suggests that growth in the South-east may be held back by large stocks of finished goods, indicating that future demand would be met from the storeroom shelf rather than the factory floor. Companies in Yorkshire and Humberside, meanwhile, expect to experience the most difficulty in pulling convincingly out of recession.

Deepening recession in Germany, meanwhile, prompted the Bundesbank to announce a greater-than-expected cut in a leading interest rate, which raised hopes of more significant reductions in the near future.

The rate set at yesterday's securities repurchase pact was lowered to 7.6 per cent from 7.71 per cent, suggesting that the Bundesbank may cut its key discount rate from 7.25 per cent next week. Speculation that key German rates are set to fall again prompted the Netherlands and Belgium to cut three leading rates by a quarter percentage point and lifted hopes of a reduction in official French rates today.