Better times ahead are predicted for industry…

UK manufacturers can look forward to better times than they faced during the last 12 months, industry leaders predicted this week.

Both the Engineering Employers’ Federation and the Confederation of British Industry said manufacturers will benefit from steadily rising order levels, stable interest rates and a strengthening euro during 2001.

Pressure on manufacturers because of the weak euro should lessen, with economists suggesting it has reached its low point against the pound and will rise from its current 60p to near 70p by the end of the year.

And while there has been concern recently about the impact on UK companies of a slowdown in the US economy, the EEF’s Engineering Outlook report, to be published next week, will indicate that most companies should benefit from both a weaker dollar and stronger euro this year.

Dougie Peadle, deputy chief economist at the EEF, said the slowdown in the US economy is likely to be relatively mild. He predicts that 2001 will be a slightly better year for exporters to the eurozone.

‘What happens in the US will obviously be of concern to companies, but the sector overall is likely to benefit in terms of a stronger euro,’ he said.

The EEF predicts that output growth in engineering, at 3.5%, will continue to out-perform the 2.1% growth for the rest of manufacturing, and UK growth overall.CBI estimates suggest that exports would rise by 5.1%, while imports should slow from 2000’s rise of 9.4% to 6.% in 2001.

Sudhir Junankar, CBI associate director of economics, said this year should be better for manufacturers than 2000. ‘Manufacturers’ output prospects will perk up, reflecting healthy world trade and a softer sterling.’

Interest rates are believed to have reached their peak, and many expect them to come down over the coming months. The Purchasing Managers Index for December showed continued but subdued growth in the sector, suggesting interest rates may be cut to sustain growth. The CBI expects interest rates to remain at 6% throughout 2001, falling to 5.5% in the second half of 2002.

But the EEF cautioned that downward pressure on margins will continue, leading to further job cuts as companies seek to offset this pressure by improving productivity. And while the strengthening euro may encourage firms to invest more, this will simply make up some of the ground lost over the last few years, according to the EEF.

‘Pressures on margins are going to be maintained throughout the year. Despite the exchange rate improvements global competition will still be very severe,’ Peadle added.

… but TUC warns interest rates must be cut

The Bank of England must slash interest rates to prevent heavy job losses in manufacturing this year, the Trades Union Congress has warned.

The TUC’s Time to Cut report, due out today (Friday), will call for a cut in interest rates from 6% to stem what it calls ‘a jobs haemorrhage’ in the sector.

The union claims that 70% of people employed in manufacturing work in industries where output is falling, and that 100,000 jobs were lost in the sector in the year to October 2000.

In contrast to healthy predictions from both the Engineering Employers’ Federation and the Confederation of British Industry, the TUC predicts that 10,000–15,000 jobs will be lost per month in 2001, unless rates are slashed.

Ian Brinkley, senior economist at the TUC, said recent increases in productivity rates of between 4–5% were achieved mainly through rising job cuts rather than high output growth.

‘There isn’t any inflation, the global situation is worsening due to a slowdown in the US economy, and the pound is over-valued — so a cut in interest rates would seem a very sensible policy, and wouldn’t take any risks with the stability of the UK economy,’ he said.