Stock market bounds to record high

SHARE prices bounded to record highs yesterday on rising hopes of a more promising economic performance in 1993.

Shrugging off a worse-than-expected fall in national output in the third quarter, the FT-SE 100 index rose in heavy trading to 2,807.7, a gain of 18 points. Yesterday's close compares with a finish of 2,493.1 at the end of 1991.

Despite indications that John Major, the Prime Minister, has called a halt to further cuts in interest rates, futures buying pushed up share prices, while a surprisingly strong performance by retailers on Sunday lifted consumer stocks. Gains on the Frankfurt and Paris markets, due to renewed optimism over an early cut in German rates, also helped sentiment.

The market largely ignored official figures that showed that, excluding North Sea oil and gas production, the economy contracted a further 0.2 per cent in the third quarter, and was 0.7 per cent below the output levels achieved a year earlier.

But a modest recovery in business confidence and output may now be under way according to initial results of the British Chambers of Commerce survey for the fourth quarter, released next month.

If the oil economy is included, national output grew by a slight 0.1 per cent in the third quarter - the first sign of growth since the third quarter of 1991. But this apparent emergence from recession reflected a recovery in North Sea oil and gas production.

In the latest quarter, oil and gas output leapt by 7 per cent as production recovered from heavy maintenance work in the second quarter and cold weather boosted demand.

Excluding oil and gas output, the fall in national output in the third quarter brought the overall contraction of the economy to 4.1 per cent since recession broke out in the third quarter of 1990.

For the whole economy, national output has shrunk by 4 per cent from the peak in the second quarter of 1990. Although the current recession is the longest since the Second World War, the latest figures indicate it has yet to prove as deep as the 1979-81 downturn. National output fell 5.4 per cent from a peak in the second quarter of 1979 to the trough of the first quarter of 1981. Excluding oil and gas production, the contraction totalled 6.2 per cent. In the 1973-5 recession, national output sank by 3.5 per cent.

The extent to which demand for imports is holding back recovery was revealed by an increase in net imports in the third quarter of pounds 4.3bn, expressed in 1985 prices, up from pounds 4.1bn in the second quarter and only pounds 2.6bn in the third quarter of 1991.

Official figures out today are expected to show the current account deficit topped pounds 1bn in November. The figures will emphasise the Government's policy dilemma in coping with the emergence from recession with both a growing current account deficit and a heavily swollen public sector borrowing requirement.

A breakdown of national output outside the oil and gas sector showed manufacturing production fell 0.2 per cent in the third quarter and was 0.8 per cent below levels achieved a year earlier.

Service output was broadly unchanged from the previous quarter and compared with the third quarter of 1991.

But construction output fell 1 per cent in the latest three months and was 4.5 per cent below year- ago levels. The decline brought the overall slump in the industry to 16.5 per cent since it slipped into recession in the first quarter of 1990.

But signs of a potential pick-up in activity emerged from a rise of 0.5 per cent in consumer spending, partly because of higher expenditure on durable goods. There was also a slowdown in the rate of destocking from the second quarter, which suggests that an involuntary build-up in total stocks might prove a less formidable obstacle to higher output in future.

Analysts expect that output in the fourth quarter will prove to have been broadly flat, with hopes of a recovery pinned on the first half of 1993.

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