Manufacturing output will decline by 0.5% this year, according to the latest economic assessment from Oxford Economic Forecasting. The likely depth and length of the recession will depend on the action on interest rates taken this week by the Bank of England’s monetary policy committee.
Despite this, many of manufacturing industry’s problems were self-inflicted, OEF said. Productivity had been ‘appalling’ over the past few years, with output per head in the first quarter of this year 1% lower than for the corresponding period in 1995.
‘It has served only to make British exporters even less competitive and squeezed profit margins,’ the assessment said.
There was still a two-speed economy, with manufacturing production falling for the third quarter in a row despite most of the rest of the economy continuing to boom.
‘The question is no longer whether the manufacturing sector will suffer recession, but rather how deep and long-lasting it will be,’ said the forecasters.
Alongside the effects of a seriously over-valued pound and high interest rates, exports to many countries hit by the Asian economic crisis had fallen by over 40% in the last year, the assessment noted.
If the Bank of England’s monetary policy committee makes it clear that interest rates have peaked, sterling could begin to fall back, said OEF, and manufacturing would begin to recover around spring, leading to an overall growth of 1% in 1999.
But if the the committee continued to dither, the pound could remain overvalued, forcing a more protracted manufacturing downturn. There was some evidence that the weakness in manufacturing was at last having an impact on service industries.