Engineers call for interest rate cut to rescue industry from the doldrums

The British engineering industry yesterday greeted the prospect of a firm euro and a decline in the value of sterling as a 'glimmer of light' for a sector mired in recession.The Engineering Employers Federation renewed pressure on the Bank of England to cut interest rates further this year as its latest quarterly survey painted a picture of sharp cuts in output, investment and employment.

The bank's monetary policy committee meets later today amid conflicting evidence on the state of the economy, particularly about consumer confidence, and the pound's relative strength against the euro, three days after the latter's introduction. Analysts believe these factors may prompt the MPC to stay its hand, with one engineering executive saying yesterday: 'If they move it means they must be deeply, deeply worried."

Graham Mackenzie, director-general of the EEF, said: 'Our survey shows that engineering remains in the grip of recession. With UK rates at more than twice the level of our European competitors and poor prospects for the rest of 1999, there is still a need for further cuts in rates at the earliest opportunity."

Ultimately, the EEF wants UK rates to be aligned with those of Euroland but Mr Mackenzie said the move should not be too rapid and could be blown off course if the euro brought volatility to the foreign exchange markets.

The EEF pointed to tentative signs that the recent weakening of the pound could bring relief for engineering firms later this year, with the balance of companies reporting a decline in new export orders down to 34 per cent in the last quarter of 1998 compared with a record low of 38 per cent in the third quarter.

'This may indicate that the generally lower level of the pound in the second half of 1998 is beginning to give some limited benefit to exporters," said Alan Armitage, EEF chief economist.