Bank: Strong pound has ravaged exports

The scale of the havoc wrought on Britain's manufacturing sector by the strength of the pound is exposed today by Bank of England research showing nine of the 12 main industrial sectors have lost their foothold in the global export market over the past decade.

It found that the vast majority of UK factories had to keep their prices closely in line with their foreign rivals, leaving them vulnerable to the massive surge in sterling in the late 1990s.

While the manufacturing sector has lost 15 per cent of its world market share since 1990, sectors such as basic manufacturing have fallen as much as a quarter. Other victims included clothing and footwear, chemicals and electrical machinery. It said this contrasted with the US and eurozone, where companies seem to have greater pricing power.

"It implies that UK industries will be more sensitive than their US and eurozone counterparts to movements in exchange rates," it said in a joint piece of research between the Bank's monetary analysis division and the central bank of Spain, published in the Bank's quarterly bulletin.

"In particular, in the face of a sterling appreciation UK companies are more likely to have to maintain their foreign currency prices and work to rebuild margins by adjusting costs, rather than change their export prices."

However, it also found that the three sectors that maintained and even boosted their share of world markets were based in technology and R&D.

Makers of pharmaceuticals, computers and communication equipment all significantly increased their share of the global market over the 10 years to 2001.

The researchers found they responded more to the changes in the world demand, which has enjoyed its strongest performance over the past four years for a generation. It said this pointed to UK hi-tech firms' ability to innovate and design new products to differentiate themselves from their competitors. The research also showed firms in these three sectors managed to cut their export prices despite the appreciation in the pound.

"These hi-tech industries may have been better placed to reap the benefits of the increase in world demand over the decade, thereby increasing their market share," the research said. "Most [other] industries are price-takers, with very limited scope for passing changes in costs on to foreign customers in higher export prices."