THE British manufacturing sector has moved into recession for the third time in the nineties.
The one at the start of the decade was part of a world-wide downturn in economic activity, made particularly nasty in the UK because of double-digit inflation and interest rates.
Recovery got under way in 1992, but it did not spread to manufacturing until the pound was forced out of Europe's exchange rate mechanism.
The subsequent devaluation of sterling gave British industry a massive competitive edge in export markets.
But manufacturing moved back into recession at the end of 1995 and the first half of 1996. The fiscal squeeze, which cost the Conservative Government the last election, hit consumer demand. Industry was caught on the hop and output declined as destocking got under way. The sluggish economies on the Continent held down demand for British goods.
As manufacturing fortunes began to improve sterling took off on foreign exchange markets. The captains of industry began to bleat, but high margins on export business cushioned the blow for a time.
Output went into decline in the second half of last year, but the strength of domestic demand cushioned the effects of an overvalued currency and the crisis in the Asia-Pacific region. Technically manufacturing is now in recession, though the rest of the economy is healthy enough.
But high interest rates seem to have curbed the growth of consumer demand from the hectic pace of last summer when windfall gains from building society flotations brought boom conditions to Britain's High Streets.
There are now signs that retail spending is slowing down. Interest rates may well have peaked at a slightly lower level than many economists had postulated.
Sterling's retreat from its high point at the end of March will bring some relief to exporters if it persists, but the pound remains close to its old central rate of DM2.95 in the ERM. Most of the competitive gains following Britain's exit from the ERM have been lost.
Meanwhile, manufacturing remains the poor relation of the British economy. It accounts for just 23% of output and has been given little consideration by successive governments. Factory output has grown by just a touch over 4% since 1990.
The unemployment figures are set to suffer from lay-offs in industry as any recovery is slow to materialise.
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