Manufacturing poised to take off in next three years, claims industry

Britain's beleagured manufacturing sector is on the verge of a strong recovery, show two surveys today. Growth in manufacturing industry will hit 1.5 per cent in 2000 and accelerate to 3 per cent in each of the next two years.

Britain's beleagured manufacturing sector is on the verge of a strong recovery, show two surveys today. Growth in manufacturing industry will hit 1.5 per cent in 2000 and accelerate to 3 per cent in each of the next two years.

The analysts Oxford Economic Forecasting said it believed the recent pick-up, which saw output grow 1 per cent in the third quarter, meant final figures for 1999 will show the sector contracted just 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 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 its Monetary Policy Committee, chaired by Governor Eddie George, is divided over inflation. The minutes of the latest meeting are likely to show the committee was split on its decision to raise rates.

The recent recovery in overseas markets would benefit exporters and help the sector grow 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. The two organisations differed on the sub-sectors they picked to lead manufacturing into recovery.

The institute said 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."

The OEF projected a "subdued" 1.3 per cent growth in chemicals but picked computers and office equipment as its growth sector, racing ahead 10.7 per cent, albeit slower 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 in September, will be highlighted in tomorrow's inflation figures. Rising car insurance and surging house prices are expected to feed through to a rise in headline inflation to 1.2 per cent from 1.1 per cent.