View From City Road: Manufacturing figures to silence the sceptics

It would take Diogenes himself, the cynic who took to his salt barrel, to find fault with yesterday's figures for industrial production. True, the sharp rise in manufacturing in May may be due in part to over-enthusiastic seasonal adjustment. The figures assume that the impact of the bank holiday fell in May, but its late timing may in fact have affected June.

But even after allowing for the maximum distortion, manufacturing is clearly in rip-roaring shape. If there is no further rise in factory output in June, the second-quarter increase will be 2 per cent, or more than 8 per cent a year. Given that manufacturing accounts for a quarter of total output, the overall economy will have grown by at least 0.5 per cent.

The pattern of manufacturing growth is also perfect. The biggest rise is in investment goods, up in real terms by 2.7 per cent in the past three months. This is good news because investment goods are also the only category of production that improves our capacity to produce more. Britain's manufacturers appear to believe that the recent gains in price competitiveness will hold.

Consumer goods output was up by 0.8 per cent in the three months to May, mainly due to the exceptionally strong 10.6 per cent rise in car output as the Japanese producers build up production and Rover claws back market share. With luck, our manufacturers may be able to hold off a sharp rise in import penetration as home demand recovers.

The output of intermediate goods that go into the production of the other two categories fell back slightly. This suggests that little if any of the sharp rise is attributable to the short-lived impact of the stock cycle. (When companies resume orders from suppliers after running down stocks, there is a surge of demand). All in all, the new Chancellor could hardly have hoped for a better set of figures. All our manufacturers need to do now is to keep it up.