UK Manufacturing Improves As Inflation Fears Rise

LONDON (AP) -- British economic indicators continued to give mixed signals Friday, as manufacturing showed signs of resilience but a separate survey detected growing concern among consumers about inflation.

Manufacturing output fell 0.4 percent in April from March, but was still 3.4 percent higher than a year earlier, the Office for National Statistics said Friday. The monthly decline also followed a 2.2 percent jump in March.

The broader index of production, which includes mining and energy production, was up 2.1 percent from a year ago, despite a drop of 0.4 percent from March.

"Even if output were to remain flat in May and June, quarterly manufacturing output growth in Q2 would still be a very healthy 1.7 percent," said Hetal Mehta, senior economic adviser to the Ernst & Young ITEM Club.

"Manufacturers are rebuilding their stock levels. In addition, the pound remains weak and is continuing to support UK competitiveness," Mehta said, adding: "Manufacturing is clearly leading the recovery."

Output of motor vehicles was up particularly sharply on the year, rising 28 percent, and production of power machinery was up 30 percent.

However, a survey by the Bank of England which asked respondents to guess the current rate of inflation and the rate over the coming year, showed mounting fears that consumer prices will rise.

The median expectation of inflation over the coming year was 3.3 percent, compared to 2.5 percent in February.

The current inflation rate was seen at 3.6 percent, up from 3.3 percent in February and just shy of the latest official estimate of 3.7 percent registered for April, a 17-month high.

The Bank of England, which has an official inflation target of 2 percent, conducted the survey in mid-May.

Despite the growing concern about inflation, the Bank's Monetary Policy Committee announced on Thursday that it was holding the base interest rate at an all-time low of 0.5 percent.

"The MPC would have seen today's data before making its decision to keep policy unchanged yesterday," said Varun Bhabha at Barclays Capital. "Hence, it does not provide us with anything new regarding the outlook for policy."

The Bank cut the rate to that level in March 2009 in an effort to pull the country out of steep recession, which finally ended in the last quarter of 2009.

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