Manufacturers can expect another year of falling demand, with mechanical engineering and motor vehicles hit particularly hard, according to a report out this week.
Oxford Economic Forecasting (OEF) predicts that manufacturing output will fall 1.4% during 1999 and recover to produce an average rise of 3% over the following three years.
Mechanical engineering will continue to suffer from weak domestic demand and poor international competitiveness. Output is expected to fall 1.9% in 1999, with metal products down 4.6%. Employment in the sector will fall until 2002.
Last week’s Budget did more harm than good, said Alan Wilson, OEF’s head of industrial and regional services. ‘If anything, life is going to be more difficult because the Chancellor appeared to inject money into the economy, raising the level of the pound.’
The hardest-hit sector is predicted to be transport equipment. OEF says output will fall 5.4% in 1999, and continue to fall in 2000. Motor vehicle output will drop 9.4% and vehicle bodies and parts 12.5%.
Long-term prospects will depend on decisions made abroad, warns the report. ‘If foreign owners are unable or unwilling to carry out the investment to bring plants such as Longbridge up to modern productivity standards, they will be closed.’
A ‘surprisingly strong’ last quarter of 1998 lifted chemical output, the OEF report says, but 1999 is expected to be more difficult. Weakening demand and de-stocking in continental Europe could lead to a stagnation in the level of UK production.
The electrical engineering and electronic equipment sector is one of the most divided. Strong growth in consumer electronics and computers contrasts with a decline in precision and optical equipment and in electrical fittings.
The only hope for industry is that the recession in manufacturing could hit the service sector, leading to an interest rate cut, says OEF.