FACTORY OUTPUT fell in November for the fourth month running, and prices charged at the factory gate in December were flat for the first time in nearly forty years, according to official figures yesterday.

A separate survey from the British Retail Consortium, backed by mixed trading statements from retailers, suggested Christmas on the high street was disappointing, although sales had surged in the new year.

But the gloom has not overtaken the rest of the economy. GDP scraped a 0.1 per cent increase in the final three months of 1998, according to an estimate from the National Institute of Economic and Social Research. And the Institute of Directors reported a modest improvement in general business optimism in its quarterly survey.

Some economists still reckon official figures due next week will show the economy flat, at best, at the end of last year. There was support for this in the new estimate of the trend in manufacturing from the Office of National Statistics, revised from minus 1 per cent to minus 2 per cent.

However, most experts still agree that, with luck, the British economy will escape a full-blown recession. Ruth Lea, head of policy at the Institute of Directors, said: "In the early 1990s it was a recession made at home. If we do have one as the decade ends, it will be because of what happens abroad."

Manufacturing output fell 0.2 per cent in November, and 1.1 per cent in the latest three months. The steepest falls occurred in textiles, basic metals and machine tools. Output climbed in industries such as electrical engineering, which includes computers, and chemicals.

Prices charged at the factory gate were flat in December for the first time since March 1960. "Core" output prices dropped by a record 0.6 per cent during the month. Prices paid by manufacturers for raw materials fell 1.2 per cent, driven by an 11.4 per cent drop in fuel prices.

A gloomy note was also struck by the British Retail Consortium, whose monthly survey reported a small pick-up in sales growth in December. Total sales growth was up to 2.6 per cent from 2.4 per cent, and like-for-like sales were flat after a fall of 0.4 per cent in the year to November.

The survey was accompanied by a mixed set of Christmas trading statements. The men's fashion group, Austin Reed, reported a 12 per cent decline in like-for-like sales in the six months to 31 January and announced the closure of a shirt factory in County Donegal with the loss of 136 jobs.

Austin Reed said trading since Christmas was proving "exceptionally difficult" and added that pre-tax profits for the year to 31 January would only come in at pounds 6m to pounds 6.5m, against analysts' forecasts of pounds 9m.

There was more upbeat news, however, from a string of niche retailers. The book retailer, Ottaker's, said like-for-like sales over the six-week period to 2 January were 6.3 per cent higher while Majestic Wine reported a 2.7 per cent rise for the nine weeks from 3 November.

Merchant Retail said like-for-like sales across its Perfume Shop chain were up by 9 per cent and in Joplings, its North-east-based department store chain, by 4.7 per cent. Meanwhile, the supermarket chain Morrison said like-for-like sales were 5.3 per cent higher in the five weeks to 3 January.