Two-speed recovery for engineering industry

The UK’s engineering industry is coming out of recession at two quite different speeds, figures released this week show.

Companies in the electronics, aerospace and motor vehicles sectors are seeing output rise rapidly, while those in metals and metal products are growing slowly or not at all.

Engineering output rose in the last quarter of 1999, the second consecutive quarterly rise, the Engineering Employers’ Federation said in its latest trends survey.

Recovery was fastest in areas such as London and the south east, which have more high-tech companies.

Some traditional manufacturing areas, such as Wales and the West Midlands, performed well, but output continued to fall in Scotland, Yorkshire and the east Midlands.

Traditional manufacturing businesses may soon be forced to close down, EEF Northern Association president Martin Walker warned. His company, North Eastern Iron Refining, based on Teesside, is operating at just 55% of capacity.

Other manufacturers are faring better. Sussex-based radiotherapy equipment maker Varian Medical Systems plans to increase capacity this year to cope with a 20% rise in output.

But John Peel, Varian’s managing director, said he was concerned about the closure of UK suppliers. `My concern is that the supply chain is getting smaller and smaller. If this continues, I will be forced to go overseas for more components.’

Despite the rise in output, employment is still falling – 76,000 engineering jobs, or 4.4% of the total, were lost in the year to September. The total for the whole of 1999 is expected to reach 100,000.

But the gap between the number of firms taking staff on and the number of firms losing staff was, at 22-30%, the narrowest since early 1998. If it continues to narrow at the same rate, employment should start to pick up again this year.

Meanwhile, investment fell again for the sixth consecutive quarter. The EEF blamed the reluctance to invest on a strong pound and high interest rates.

Its forthcoming budget submission is expected to call for the government to use other methods apart from interest rates to cut consumer demand.

EEF director-general Martin Temple said: `My greatest concern is the lack of will to move away from managing the economy solely in response to the latest monthly statistics, using the blunt instrument of interest rates. The government and the Bank of England must not shy away from their responsibility for managing the economy.’

What the bosses say

Martin Walker, managing director of Teesside-based North Eastern Iron Refining Company, said: `We are approaching critical mass in metal-bashing industries. The next stage is a massive reduction in capacity, and possibly moving production elsewhere.’

John Peel, managing director of Sussex-based Varian Medical Systems, said: `We have seen year-on-year growth for the past 15 years. To keep up with rising levels of output, employment levels are also going up. What we would most like the government to do is sort out the transport problems in the south east.’

Terry Scouler, managing director of Oldham-based aerospace and defence electronics manufacturer Ferranti Technologies, said: `We are somewhere at the top of the cycle with no sign that it is coming down.’ He added: `The exports market is still robust. I don’t believe the strength of the pound is the whole story. It’s more to do with competitiveness, investment and technology.’