Tony Blair admitted for the first time yesterday that the strength of the pound was responsible for the 2,000 job losses that Ford is expected to announce tomorrow with the ending of car assembly at its Dagenham plant in Essex.
The Prime Minister's comments came as the Phoenix consortium suffered a blow, just one day after taking control of Rover, when the Japanese car giant Honda said it was not interested in a partnership with the company.
In a clear signal that the Government is keen to talk down the value of sterling, Mr Blair told the Commons: "On manufacturing, let us be clear the problem particularly for those selling into Europe is the strength of the pound."
His was responding to an attack on the Government's record on manufacturing by William Hague, and echoing remarks by Gordon Brown. The Chancellor said on Monday that the pound's strength against the euro "cannot be justified by any view of long-term economic fundamentals".
So far, ministers are resisting calls from Michael Heseltine and the Britain in Europe campaign for a clearer commitment by Britain to enter the euro as part of the strategy for lowering sterling's value.
Mr Blair said: "We will of course do all we can to protect those jobs that can be protected - we will be there ready to help with money, investment and advice for those who do lose their jobs.
Ford is expected to announce that production of the Fiesta at Dagenham will end in November next year when a replacement model goes into production. This could mean up to 4,000 job cuts at the plant, which employs 8,000. But Ford will soften the blow by unveiling plans to increase diesel engine production, reducing the net job losses to 2,000.
Some workers at Dagenham may be able to move to other plants but those who decide to go will be eligible for redundancy payments of up to almost £40,000.
The Ford crisis quickly took the shine off the announcement 24 hours earlier about the rescue of Rover. But even that piece of good news was tempered when Honda, seen as Rover's best hope of forging a collaborative agreement with a mass car maker, said it was not interested. Hiroyuki Yoshino, Honda's president, said: "Phoenix may be wanting to talk to us and we would listen. But we are not interested."
Tieing up with a major car manufacturer is seen as vital to Rover's long-term security and its ability to bring out another model to replace the Rover 25 and 45 range.
In a separate move, Geoff Hoon, the Secretary of State for Defence, has delayed a decision denying British yards the contract for roll-on-roll-off ferries after pressure by the Secretary of State for Trade and Industry Secretary, Stephen Byers, to do more to protect jobs.
Downing Street resisted the calls from trade union leaders and business chiefs to intervene more directly over sterling. The Prime Minister's official spokesman said a "short term devaluation of the pound would help nobody".
However, Mr Blair clearly responded to pressure from Midlands MPs whose Labour local authorities saw huge losses to the Tories last week, by signalling that sterling is the key problem in the jobs crisis in manufacturing. The Tory leader will today step up the Tory campaign over jobs. "If the Government won't speak to its heartlands, we will," said a Tory spokesman.
Ken Livingstone, the Mayor of London, said the Government should make it harder for companies like Ford to sack workers when there was over-production in Europe.
Mr Blair last weekend secretly met the head of Ford UK to prepare the jobs rescue package for the Dagenham area. Downing Street said there was no question of direct funding for the company.
Downing Street officials who were heavily engaged behind the scenes in the Rover rescue have now been ordered to prepare a damage-limitation exercise over Ford.