Euro engineers a boost

The rise of the euro against sterling bodes well

The recovery of the euro will help the UK's engineering sector outpace the country's economy as a whole this year, a leading industry group has said.

The sector, which has seen orders grow over the second half of last year will expand by 3.5% in 2001, according to a report by the Engineering Employers' Federation.

Growth will be supported by a 7.4% increase in world trade, productivity improvements and a revived euro which, against sterling, last week reached a six-month high of £0.6377.

But the sector's overall buoyancy, which will see it outperform the rest of manufacturing in 2001, hides a more complex pattern of trends, the report showed.

Slump in motor sector

In the main, only firms with more than 200 staff have been able to increase exports, and southern England and Scotland have proved the strongest regions.

Suppliers to the motor trade performed significantly worse than average in the last three months of 2000.

And the use of job cuts, rather than investment, to boost productivity bodes ill for the future, warned the report, undertaken with consultants RSM Robson Rhodes.

"Whilst the short-term outlook for engineering is increasing... the upturn can only be sustained if levels of investment increase," EEF chief economist Stephen Radley said.

The EEF called on the government to introduce financial incentives to encourage firms to boost in-company spending, while avoiding the temptation to spend the country's budget surplus on broad-ranging tax cuts.

Over-generous tax cuts would, by stimulating demand and so adding to inflation fears, "make it difficult" for the Bank of England to cut interest rates, the EEF said.