UK manufacturers 'cautious on euro'

Many UK manufacturers remain undecided over the timing of any possible entry into the eurozone by the UK, a survey has found.

The survey of 500 firms by the Engineering Employers' Federation (EEF) found that 55% of firms either supported joining in principle but did not want to see a rigid timetable, or wanted a 'wait and see' approach.

It found that the proportion of those who wanted to join, either as soon as possible or by 2005, rose to 29% from 21% in January.

The percentage of firms who thought the UK should decide now to not join in this Parliament, or should never join, edged up from 14% to 16%.

Eurozone growth worries

The EEF said the caution displayed by manufacturers was partly due to the eurozone's current poor economic performance.

"Our survey shows that whilst manufacturers are becoming more internationalised and more exposed to the euro, the majority of them still remain undecided on this issue," said the EEF's director general Martin Temple.

"Apart from a more competitive exchange rate, what manufacturers need most is to see their largest market - the EU - perform more strongly."

The EEF urged the government to try and make the eurozone a "more dynamic marketplace by pushing for greater liberalisation and seeking reform to the Stability and Growth Pact".

Many firms see UK entry into the eurozone as inevitable by the end of the decade.

More than half of respondents said it is 'likely' the UK will have joined the euro by 2005, with 16% saying it was 'very likely'.

By 2010, 61% think it is 'very likely' the UK will have joined, with a further 26% saying it is 'likely'.

Exchange rate concern

A more competitive exchange rate was mentioned by 68% of firms as a factor likely to raise support for euro entry.

Many manufacturers have argued that the pound is overvalued against the single currency, and their claims were given some support by a survey from the accountancy firm Deloitte & Touche.

The study said that the pound needs to fall by up to 20% against the euro to allow UK exporters to be competitive.

D&T said the overvalued pound was one reason why growth in the UK economy had been so unbalanced in recent years.