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Tuesday, July 27, 1999 Published at 11:53 GMT 12:53 UK

Business: The Economy

UK industry regains confidence

Exports still slip, but as the pound weakens, prospects improve

For the first time in two years, UK manufacturers are positive about their business prospects.

The country's export industry, however, is still smarting.

According to the quarterly industrial trends survey by the Confederation of British Industry (CBI), 21% of firms were more optimistic about their business prospects, while 16% were less optimistic.

This is a balance of plus 5%, and compares with a negative balance of minus 6% in April and minus 40% in January.

Nick Reilly, chairman of the CBI's economic affairs committee, said: "The survey suggests that manufacturers confidence is improving, but from a very low base."

He said the producers of consumer goods had seen the "most notable" improvements, which he described as a result of the Bank of England's succession of interest rate cuts.

The bank's key interest rate currently stands at 5%, a 22-year low.

Mr Reilly, who is alos managing director of Vauxhall Motors, said the CBI believed that the rate cuts had brought "interest rates to the right level for now, given the evidence of a gathering recovery in the domestic economy".

He warned that the strength of sterling was still causing pain for UK exporters. Small profit margins were curtailing the investment plans of these companies.

Export orders are still falling, but at their slowest rate since January last year.

Business confidence is generally seen as a leading indicator of recovery, foreshadowing an increase in output that may occur months later.

Its rapid improvement suggests that the UK's GDP will move into positive territory when the figures for the second quarter of 1999 are released later this week.

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