Chancellor Gordon Brown dashed manufacturers’ hopes of an early depreciation in sterling this week with his statement on European economic and monetary union.
Economists said while they were confident the pound would move towards its ‘optimum’ DM2.5 2.6 level, the process was likely to be very gradual.
According to Professor Charles Bean of the London School of Economics, Brown had done much to reduce sterling volatility, but uncertainty over continental interest rates would keep the pound attractive to speculators. The Chemical Industries Association said it was disappointed that political considerations had led Brown to delay joining the European single currency area until at least 2003.
Manufacturing’s attempts to highlight its sterling problem continued on Tuesday with publication of the Engineering Employers’ Federation’s quarterly Trends survey. This reported a 13% trend towards declining exports for the third quarter of this year, the third fall in a row and the weakest figure recorded since the reports began in 1994.
For the first time, Trends included forecasts for overall manufacturing growth for this year and next, produced in conjunction with Business Strategies.
The organisations said they expected 3.5% growth this year, as domestic demand makes up for the export shortfall. Growth is expected to fall to 1.7% in 1998.
‘This figure does build in some depreciation in sterling, but other factors will come into play,’ said Alan Armitage, the EEF’s head of economics.
‘The main ones will be greater export penetration as foreign companies feel more confident about entering the UK market because of a still relatively attractive exchange rate,’ he said.