Interest rates and sterling slow growth

High levels of sterling and interest rates are stifling UK manufacturing growth, the latest British Chambers of Commerce (BCC) quarterly survey revealed this week.

UK sales rose at their slowest rate for six months despite hitting a two-year high. Exports levelled off, with large firms coping with high exchange rates as smaller firms showed strain.

Dr Ian Peters, deputy director-general of the BCC, said business growth was losing momentum and that the outlook for exports remains fragile. `There is evidence that a combination of interest rate rises and the strength of sterling is starting to bite,’ he said.

Confederation of British Industry figures released yesterday showed traditional manufacturing companies battling over the past quarter to sustain economic growth.

Peters urged the Bank of England not to raise interest rates further and called on the chancellor to tighten fiscal policy to ease the pressure on interest rates and sterling.

`Manufacturers have learnt to live with a stronger pound by increasing productivity and absorbing increased costs, but any exchange rate in excess of DM3 is still too high,’ he said.

A rise in raw material costs and difficulties recruiting semi-skilled and unskilled labour, particularly in the south of England, were also exerting inflationary pressures.

Ian Fletcher, principal economic adviser to the BCC, said northern and Midland manufacturers’ orders were growing, with a slowdown in the south -contrary to claims by the Engineering Employers’ Federation that manufacturing growth was based on a high-tech suppliers boom benefiting the south.

David Botterill, chief executive of the EEF’s West Midlands region, said its recent survey of members showed that exports had fallen for the twelfth successive quarter.

`The strength of the pound is going to make exporting very difficult for the foreseeable future, whatever reports say about firms beginning to live with a strong pound,’ he said.