Industry sees continuing growth but fears slide

Britain's manufacturers have posted their sixth consecutive month of growth taking the annual rate of expansion to a near-16 year high though analysts fear the sector recovery may have peaked.

• The car industry has seen continued growth but manufacturing as a whole fears a slowdown

Official figures yesterday revealed a 0.3 per cent rise in manufacturing output in August, slightly ahead of forecasts and following an upward revision of July's reading to 0.4 per cent.

That pushed up the annual rate of growth to 6 per cent from 5 per cent in July, marking the fastest pace since the tail end of 1994. Other surveys in recent weeks have suggested the manufacturing rally may be fading as firms begin to see much slower demand.

The sector, which accounts for roughly a fifth of the economy, has been boosted so far by a weak pound and customers replacing stockpiles used up in the recession. The latter is seen as a temporary effect and is expected to reduce as the year progresses.

Manufacturers are also braced for weaker demand as governments around the world embark on austerity drives and raise taxes.

Jonathan Loynes, chief European economist at Capital Economics, said: "There are good reasons to doubt that the recent robustness of the industrial sector will be sustained. Demand in key export markets like the eurozone remains weak and exporters' order books have been deteriorating."

Yesterday's data from the Office for National Statistics showed that output from the wider production industries, which includes the utilities and mining sectors, also increased by 0.3 per cent in August after maintenance shutdowns in the oil and gas sector earlier in the summer.

Howard Archer, chief UK economist at forecasting group IHS Global Insight, said overall industrial production was likely to have risen by 0.4 per cent quarter-on-quarter in the three months to September - well down on the 1.1 per cent recorded in the second quarter.

"The concern is that manufacturing activity will be pressurised by tighter fiscal policy increasingly hitting domestic demand and slower global growth dampening foreign demand, as well as by stock rebuilding winding down," Archer added.

The 0.3 per cent monthly increase in manufacturing output was driven by food, transport equipment and the "other manufacturing" category, the ONS report revealed.Output in the publishing, textiles and machinery sectors fell.

The British Chambers of Commerce said signs that manufacturing has expanded faster than services in recent quarters suggested a rebalancing of the economy may be taking place.

However, chief economist David Kern added: "There is no room for any complacency, the recovery is not secure in the face of worrying signs of a slowdown in the global economy, and the likely impact of fiscal austerity in the coming year.

"It is important to nourish the manufacturing recovery, particularly helping companies to retain their valuable skills base and ensuring that UK exporters are not at a competitive disadvantage."