Outlook: No sympathy
Wednesday 12 May 1999
Still, it would be easier to feel sympathy for plucky manufacturers struggling with the burden of a strong pound if they had shown themselves able to take advantage of the weak pound between September 1992 and mid-1996. In fact, manufacturing output grew by just 7 per cent in those four years, despite a surging economy.
Over the same period, the level of manufacturing productivity in the UK rose 6 per cent - only a third of the increase achieved by French and German manufacturers, who were then labouring under their own strong exchange rate. With that record, the claim by the ever-vocal manufacturing lobby that everything would be hunky-dory if only the Bank of England could bring the pound down has to be treated with scepticism. There is nothing in Britain's recent economic history to support the view that industry's problems would be solved by the panacea of depreciation. The behaviour of sterling in the past three years is a brief aberration in a long history of currency - and manufacturing - decline.
The Monetary Policy Committee signalled last week that if the pound does stay high it might cut interest rates again. The nine experts will certainly continue to come under pressure from business organisations and those unions staging a circus of protests on Threadneedle Street.
But if the high exchange rate does provide a rationale for lower interest rates, it is not because industry is still in the doldrums. Rather, the strong pound is a reflection of the strength of the rest of the British economy. The strength of the pound might yet allow borrowing costs to fall further, but that will be no thanks to manufacturing.
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