New slump heralds rate freeze

A DISASTROUS slump in manufacturing output has all but guaranteed the Bank of England will keep interest rates on hold on Thursday. Factory production plunged by 0.8% in March, official figures showed today, dragging the year-on-year rate of decline to a miserable 6.8% - the fastest pace of deterioration since the depths of the early Nineties recession.

For the first quarter as a whole, output was down 6.5% on a year ago - the sharpest drop since 1981. The bulk of the decline was blamed on huge falls in pharmaceuticals output and car production, both of which posted a strong performance the previous month. There was also evidence of firms meeting new orders from stock rather than boosting output.

In a further blow, manufacturing output for February was revised from an earlier increase of 0.4% to a rise of 0.2%. City economists, who had pencilled in a 0.3% increase for March, were stunned by the news.

Sterling hit $1.4580, its lowest this week, while short sterling and gilts reversed earlier losses as dealers scaled back expectations of higher interest rates. 'These data indicate just how fragile the recovery is,' said economist Richard Iley at ABN Amro.