Production drop backs up Clarke

BY DIANE COYLE

Economics Correspondent

A surprise fall in industrial production in April and a survey suggesting that retail sales are growing only modestly backed the Chancellor's decision not to raise interest rates this month.

Many analysts now expect base rates to stay unchanged until at least the autumn. But the evidence from yesterday's figures was mixed, with the Confederation of British Industry's distributive trade survey bringing new worries about inflation.

Both total industrial output and manufacturing production fell 0.2 per cent in April, disappointing expectations of a small increase. The fall mainly reflected lower car production and a sharp drop in oil refinery output.

Both are likely to prove erratic. Although domestic car sales have declined, exports are strong. And two oil refineries went out of action for maintenance in April, the month after a third had boosted output by coming back on stream.

Taking the latest three months together, production shows signs of picking up from its new year doldrums. Output was 0.9 per cent higher than in the previous three months and 3.7 per cent up on a year earlier. For manufacturing the increases were 0.6 per cent and 3.1 per cent.

The official figures are still much weaker than industry surveys would suggest. Helen Macfarlane, an economist at Hoare Govett, said the disparity lay in data for the engineering industry, and suggested official statistics were under-recording production for export.

The CBI survey sent mixed signals. It reported a modest rise in retail sales volumes in May, in contrast to strong growth in April. Alastair Eperon of the CBI said the trends showed annual growth in retail business had resumed, although it was uneven across sectors. "It would be unwise to assume that retailing as a whole is on an upward trend," he said.

The survey found a significant rise in the balance of retailers reporting they had charged higher prices last month. It was the biggest increase in two years, although still well below the long-term average. Statistics on factory gate prices, which have surged in recent months, and retail prices will be published next week.