The cuts will affect all operations except research, design and engineering.

They will be achieved through voluntary redundancies, early retirement, natural wastage and the ending of short term contracts.

Stephen Evans looks at the reasons for the move

The company, owned by Germany's BMW, said: "All attempts will be made to avoid compulsory redundancies."

It also confirmed plans to introduce a four-day working week because of the strength of the pound which it described as "overvalued".

The carmaker, which is one of the UK's largest manufacturing exporters, also confirmed plans to increase its use of overseas components from 15% to 25%.

It said it would use as much as 30% for the new Rover R40 model. This could hit jobs at the company's British based suppliers.

The news comes despite a promise six years ago that workers would have a job for life in return for increased productivity.

Time for action

Rover chairman Dr Walter Hasselkus said: "The time has come to take action.

"We have been protected from the effects of the strong pound by forward buying of currency, but this protection cannot last forever.

Chairman Walter Hasselkus: "It's time for action"

"These measures will protect the business for the short term without threatening long term investment...and will maintain progress towards our strategic objective of profitability by the end of the decade."

Dr Hasselkus said improved productivity in recent years could not compensate for "the distortion in trading conditions caused by the 30% decrease in sterling's competitiveness since 1996."

Sales buoyant

The cutbacks come at a time when Rover sales worldwide are buoyant.

Total sales, including its Land Rover products, reached 260,000 units in the first six months of 1998 compared with 250,000 for the first six months of 1997.

The company employs 39,000 people

Production levels are currently running at around 520,000 units a year.

Rover makes its 600 and 800 models at Cowley near Oxford, where the new R40 model - a replacement for the 600 and 800 - will also be made.

Longbridge in Birmingham is the production home for the long-running Mini, the MGF, the Rover 200 and the Rover 400.