Manufacturing poised to take off in next three years, say forecasters

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BRITAIN'S beleaguered manufacturing sector is on the verge of a strong recovery, two surveys out today suggest. Growth in manufacturing industry will hit 1.5 per cent in 2000 and accelerate to 3 per cent in each of the following two years.

One survey, from Oxford Economic Forecasting (OEF), said the recent pick-up, which saw output grow by 1 per cent in the third quarter, meant that final figures for 1999 will show that the sector contracted by only 0.8 per cent. "We expect output to rise by 1.6 per cent in 2000 and accelerate to over 3 per cent in 2001 and 2002 when the impact of weaker sterling improves competitiveness," it said.

The rise in the value of the pound has been a major factor in choking off growth in the export manufacturing sector by driving up the cost of goods imported from the UK. But the analysts admitted that a strong pound was a major risk to its growth forecast - no devaluation would mean lower growth.

The Bank of England's latest Inflation Report showed that its Monetary Policy Committee, chaired by Governor Eddie George, is divided over inflation. The minutes of the latest meeting are likely to show that the committee was split on its decision to raise rates.

The recent recovery in overseas markets would benefit exporters and help the sector grow by 1.5 per cent next year, said the Institute of Manufacturing. Sir Ian Wrigglesworth, chairman of the institute's economic advisory group, said the sector was still suffering from the strength of the pound.

"The improvement is largely due to the fact that manufacturing firms have made themselves more competitive by holding down prices and profits," he said.

However, the two forecasts differed on the sub-sectors they picked to lead manufacturing into recovery. The institute said that chemicals and engineering would benefit from the overseas growth. "Over the next two years, both the engineering and paper industries should grow at a rate similar to the manufacturing average, but the chemicals industry is expected to notch up an impressive growth rate of 6 per cent a year."

OEF projected a "subdued" 1.3 per cent growth in chemicals, but picked computers and office equipment as its growth sector, racing ahead by 10.7 per cent, albeit less than the 22 per cent seen this year.

Manufacturers still find it hard to pass on price increases. The divide between goods and services inflation, estimated at 0.5 per cent and 3.6 per cent respectively in September, will be highlighted by tomorrow's inflation data. Rising car insurance and house prices are expected to feed through to a rise in headline inflation to 1.2 per cent from 1.1 per cent.