Rise in factory output eases economic fears: January growth biggest for six months

FEARS that the economy might be stalling were eased yesterday by figures showing a sharp jump in factory production last month. But the Central Statistical Office added that factory output last year was also more subdued than it first thought.

Factory output rose by 1.1 per cent in January following a 0.2 per cent fall in December, which was smaller than first estimated. January's growth - the sharpest for six months - was explained largely by leaps in mechanical, electrical and electronic engineering output.

The Treasury described the figures as 'encouraging', while the Chancellor, Kenneth Clarke, sounded an upbeat note on employment ahead of next week's 'jobs summit' in Detroit. 'The British economy is one of the few that is creating new jobs,' he said.

The Chancellor denied that he would be isolated at the meeting of the Group of Seven leading industrial nations. Launching a document outlining the British approach, he argued that the keys to higher employment were free trade, labour market flexibility and efforts to keep inflation and public borrowing under control. He rejected the idea of stimulating economic growth through public works.

But John Prescott, Labour's employment spokesman, said the Government wanted Britain to become a 'second-rate sweatshop'. He urged investment in training and technology rather than further cutting of industry's costs.

The CSO said that output in manufacturing industry was now growing at a trend rate of 2 per cent a year. But it also cut its estimate of factory output for 1993 as a whole by 0.2 per cent, arguing that more of the rise in the value of output last year appeared to be the result of higher export prices to the EU rather than a higher physical volume of production.

Factory output in the three months to January was 0.6 per cent higher than in the previous three months, although industrial production grew by 0.9 per cent because of rapid increases in North Sea oil and gas extraction. On this basis growth was most rapid in wood, coke, oil refining and nuclear fuels, electrical equipment, rubber and plastics. Transport, minerals and leather products output fell.

Michael Saunders, of Salomon Brothers, said this meant that gross domestic product could be revised down by 0.1 per cent in both the third and fourth quarters of 1993.

But Robert Lind, of UBS, said it was likely that the CSO figures were understating the true level of factory output. 'The Government can take comfort from signs of more buoyant activity growth, but the prospective path of inflation is more important in the setting of interest rates,' he said.

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