Industry buoyant as orders flood in

Industrial orders have jumped to a six-year high this month, a survey showed yesterday as a sharp fall in mortgage approvals pointed to a slowdown in the housing market.

The CBI's latest industrial trends survey showed the hard-pressed sector back on the road to recovery after an apparent blip in July.

The balance of those firms reporting orders above normal over those reporting them below normal rose to +2%, the highest since February 1998 and well up from July's reading of -7%. The balance of firms expecting to increase output in the coming months jumped to +19% from +6% the month before.

"This is good news for our manufacturers. We are seeing a real change. Their restructuring is working and they have done better than their counterparts in Germany, Japan or the US," said CBI chief Digby Jones.

"The situation is looking better than we ever thought it would but there are clouds on the horizon," he said, citing the high oil price and sluggish performance of export markets such as Germany and Japan.

The oil price, he said, would not be inflationary because it would be absorbed by firms, although that would hit their profitability. The CBI survey, showed, however, that firms' intentions to raise their prices were at a seven-and-a-half year high. Oil prices hit a record of almost $50 a barrel last Friday but have since fallen back sharply as supply fears have dissipated. US light crude dropped below $43 a barrel yesterday while Brent crude dipped to $40.

The CBI also released its quarterly economic forecasts in which it predicted a healthy growth rate of 3.4% for this year but trimmed its forecast for 2005 to 2.8% from 3%.

Mr Jones called on the Bank of England to limit its interest rate rises to one more at most in the current cycle. That would mean a peak of 5%.

He spoke as figures from the British Bankers' Association showed a sharp fall in mortgage approvals in July, chiming with other evidence indicating the booming housing market may finally be coming off the boil. The BBA said approvals fell to 71,000 in July from 89,000 in June.

A separate report, from Experian Business Strategies, predicted that consumer spending would continue to slow next year as rate rises and a cooling housing market hit consumer confidence.

Data from the Office for National Statistics showed business investment in the second quarter of the year, at over £29.2bn, was the highest ever.