Engineering export recovery hampered by strong pound

The UK’s engineering industry will be held back from enjoying a recovery in global markets this year because of the strength of sterling, the Engineering Employers Federation (EEF) said this week.

Growth in the sector is forecast to rise from 1.3% last year to 2.1% this year as domestic and European demand starts to improve. But jobs will continue to be lost and investment cut as companies struggle to keep prices down to euro-zone levels.

In manufacturing as a whole, the EEF said output will recover from last year’s recession but 60,000 jobs will be cut – an estimate made before the impact of BMW’s sale of Rover was taken into account.

EEF chief economist Stephen Radley said: `This should be a good time to be in manufacturing, but difficult conditions are likely to mean many opportunities will be missed.’

And engineering suppliers further down the supply chain are starting to lose orders. `A number of companies are sourcing more components from abroad. More worryingly, in some cases they are looking at doing the same with parts of the production line,’ Radley said.

John Nutton, partner at accountant RSM Robson Rhodes, said last month’s budget had missed a chance to encourage investment. He suggested lower corporation tax rates could be used to compensate sectors such as engineering which had been hit by the weakness of the euro.

The National Institute for Economic and Social Research said UK companies’ export profit margins had crashed from 25% in 1995 to 5% now. Margins will stay at the same level until 2005, the institute forecasts.

Another survey, out this week, appeared to show a slowdown in the manufacturing sector’s recovery. The Purchasing Managers Index showed manufacturing activity rising in March compared to February, but at a slower pace than in the second half of 1999.