We have known for some time that sterling’s over-valuation is causing problems to exporters to Europe. But now we can put a figure on how much. Senior figures in the machine tool industry last week said they would be comfortable with sterling at a rate of DM2.50-2.60, compared with DM2.83 now.
Unfortunately this is below the lowest level financial analysts have predicted sterling will depreciate to in the next year. And the full effects on profits and investment of the strong pound, which at its peak earlier this year had risen by more than 30% in 12 months, have yet to be felt.
Experts say that the agile or responsive manufacturer of the future will take such unexpected shocks in its stride. The machine tool industry, in common with many sectors, has made improvements in competitiveness in recent years. But at present coping with such extreme changes is too much to ask.
Meanwhile exporters face at least another year of declining export market share. The Machine Tool Technologies Association commends the new spirit of cooperation at the DTI, and endorses the Labour Government’s overriding aim of long term stability. But it also points out that to be around in the long term you have to survive in the short term. For its part, the DTI says it is aware of industry’s concern and is monitoring the situation.
But in the end simply monitoring may not be enough. Whether the DTI can take this cooperation a stage further and prevail on the Government as a whole to give exporters some relief looks set to be a crucial test. It promises to be a decisive factor in setting the tone for relations between industry and Government for the whole of this Parliament.