DESPITE a broad City view that Kenneth Clarke, Chancellor of the

Exchequer, and Bank of England Governor Eddie George are most unlikely

to decide to raise interest rates at their monthly meeting today, share

markets were decidedly nervous ahead of the meeting, with the FTSE 100

Share Index closing 36.1 points lower at 3205.4.

Analysts considered that yesterday's industrial production figures for

July showing a resumption of manufacturing output growth after June's

dip would not provide any extra pressure for the Governor to push for a

rise at this stage, although he is known to be more in favour of an

increase than the Chancellor.

Cynics might also suggest that if an increase in base rates from the

present 5[1/4]% is to come this year -- still considered probable in

order to curtail any inflationary tendencies in the wake of the recovery

-- it is not likely to come before the Tory Party conference. But of

course cynics, and financial markets, have been wrongfooted before.

Moreover, opinion polls indicate that the Government is already highly

unpopular and it would be hard pressed to worsen the situation except

among its own MPs.

Overall, industrial production in the month rose just 0.1% in July,

well below market projections. However, an increase of 0.4% in

manufacturing output was in line with City forecasts.

The smaller than expected rise in total production was mainly due to

production falls in the oil and gas sectors, which tend to be volatile.

Taking the three-month period, overall output is up 1.6% on the

preceeding three months and 5.4% on a year ago, while manufacturing is

1.3% ahead of the previous three months and 3.9% up on the same time

last year.

The Central Statistical Office reported that most manufacturing

industries have shown increases in production in the three months to

July compared to the previous three months.

The most significant increases were 15.5% in the output of coke,

mineral oil refining and nuclear fuels industries; 3% in non-metallic

mineral products; 1.9% in the electrical and optical equipment

industries, and 1.7% in the chemicals industries. There was, however, a

fall of 1% in the paper, printing and publishing industries.

Manufacturing output is now at its highest level since March 1990, but

is still 2% off the pre-recession peak.

The economy is continuing to recover and, as yet, the short-term

outlook for inflation appears to be reasonable although some big

companies such as Bowater and Coats Viyella are reporting higher raw

material prices which will have to be passed on.