Foreign investment lifts regions

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Investment by foreign firms is helping manufacturing industry in some regions escape the weak national trend.

Scotland, Wales, the East Midlands and Northern Ireland have escaped the recession afflicting manufacturing since late last year. All have enjoyed above-average foreign investment, according to a report published today by consultancy Business Strategies.

"Manufacturing industry is having a poor year at the national level, with a forecast growth rate of only 0.5 per cent, but it is very noticeable that all of the regions where manufacturing output appears to be buoyant are those which have all received substantial amounts of foreign direct investment," said Neil Blake, research director.

The survey found the regions struggling most during the current industrial downturn are the North West, Yorkshire and Humberside, suffering from excess levels of stocks and a downturn in export markets. The three all have lower-than-average foreign investment. The one exception to the rule is the North, which has high inward investment, but has been held back by depressed metals and chemicals industries.

However, the report says regional differences are not as sharp as they once were. Dr Blake said: "Despite big variations in regional performance of manufacturing industry, the differences in overall economic growth rates will not be as great as we would once have expected. The weakness of manufacturing industry is being masked by strengthening consumer spending, and a greater spread of service industry locations means that the benefits will be seen more widely than in the 1980s."

The consultancy shares Chancellor Kenneth Clarke's optimism about consumer spending next year. It forecasts a pick-up of 4.2 per cent following 3 per cent spending growth this year.

Services and consumer-related industries remain concentrated in London and the South-east, which means they will enjoy the fastest overall GDP growth, at 3.7 and 3.4 per cent, respectively next year.