The downward spiral in the engineering sector – which this week reported falling orders, falling investment and falling employment – will continue unabated unless urgent action is taken, the Engineering Employers’ Federation warns.
It wants measures to tackle the high level of sterling, and a renewed drive for competitiveness.
`The strength of the pound is making a concrete difference on the ground. These effects will be even sharper if the pound is not slowed,’ said the EEF’s head of economics, Alan Armitage, at the publication of the federation’s second quarter Engineering Trends.
Rising inflation makes the Bank of England likely to increase interest rates by the end of the week, putting more pressure on sterling to rise.
`The consequences of the level of the pound are now very visible,’ said Armitage. He said that, at the very least, engineering firms needed a halt in the upward trend.
The EEF survey showed export orders at their lowest for three years. And there are now clear signs that the effects of the pound are restraining domestic demand and slowing the growth in output. This in turn means less capital spending and less recruitment.
`The effects are working down through the UK supply chain. Competition in the domestic market is now showing signs of increasing as more price competitive European manufacturers begin to target the UK,’ said Armitage.
The figures add more detailed evidence to Government figures this week showing the biggest fall in production for more than a decade in May.
The EEF’s survey was based on replies from 1,800 companies in early June, before the budget. While welcoming many of its measures, Armitage said the budget had not taken enough heat out of the economy.
The difficult business conditions are hitting jobs. EEF figures show engineering employment down by 13,000 in the first quarter of 1997. But the fall has done little to ease skill shortages in many key areas, such as aerospace and electronics.