Manufacturing growth strengthens case for rates rise

The Bank of England was today under further pressure to raise interest rates as official figures showed that manufacturing output increased for the first time in three months in April, rising at its sharpest rate for almost two years.

As the Bank began a two-day meeting on monetary policy, the Office for National Statistics reported a 0.9% jump in manufacturing output for April, taking the annual rate of growth to 1%. Analysts had predicted a 0.5% rise.

The wider measure of industrial production rose by 0.7% on the month - the highest since last October - and by 0.5% on the year.

"The manufacturing output data came in much stronger than expected ...The numbers will add to the evidence suggesting the Bank of England will raise interest rates tomorrow, although I still think it will be a close call," Mark Miller, an economist at Halifax bank, told Reuters.

Today's figures follow other strong economic data ahead of tomorrow's rates decision by the Bank's monetary policy committee.

In its quarterly survey, the Engineering Employers Foundation (EEF) yesterday concluded that the manufacturing industry was expanding at its fastest pace for more than seven years.

Independent surveys of the sector by organisations such as the EEF and the Confederation of British Industry have consistently shown stronger growth in manufacturing but, until now, have not been matched by official data. The Bank has expressed some surprise at the discrepancy.

Apart from the pick-up in manufacturing, news from the housing market will provide the Bank with a cause for concern.

The Halifax, Britain's biggest mortgage bank, yesterday reported a 2.2% jump in house prices last month, bringing house inflation for the past 12 months to 20.4% - its highest level for a year.

House prices and consumption have remained buoyant despite three quarter percentage point rises in rates since November.

The MPC last month nudged rates up to 4.25%, and it would be unusual for the Bank to announce back-to-back increases. However, many analysts believe it will this time be forced to ditch its softly, softly approach.

In a Reuters poll last week, 27 out of 45 analysts predicted that the Bank would raise borrowing costs by a quarter-point tomorrow. Some experts have advocated a rate rise of half of a percentage point in order to shock consumers out of their apparent complacency.

Roger Bootle, the managing director of Capital Economics, yesterday told the Commons Treasury committee that another quarter percentage point rise tomorrow would make little or no difference to house-buyers.

Separate trade figures released by the ONS showed the global goods trade deficit widening to ?4.7bn in April from ?4.2bn from the month before.