Strong pound sends UK chemicals output tumbling

Chemicals output in the UK slipped by 0.6 per cent in 1997, despite a 4 per cent rise in world output, according to the Chemical Industries Association - the first drop since 1990.

The fall in output is due to a decline in domestic demand coupled with increasing levels of import penetration, the CIAsays in its latest economics bulletin. The strength of sterling was a 'key factor' in this, it adds.

The worst affected sectors were man-made fibres and dyestuffs, although several others also suffered declines, notably agrochemicals, paints, detergents and toiletries. Pharmaceuticals output slipped by 0.8 per cent. The CIAnotes that some basic chemicals sectors showed production volume improvements, but because of the weakness of the Deutschmark, these sectors also suffered from falling prices.

In the rest of the world, output levels rose strongly in Belgium, the Netherlands, Germany and France; and kept pace with the average in Italy, the US and Japan. The increases in the Benelux countries were owing to their larger share of basic chemicals production, the bulletin comments. Overall, an increase in business confidence has led to a trend towards stockbuilding, which boosted chemicals sales.

Outlook for the UK is not much cheerier, says the CIA. Output for the first two months of the year was 'very subdued', it says. Overall, it is lowering its expectations from 2 per cent growth in 1998 to zero growth. The association draws some cheer from the recent budget, but comments that, as the UK's biggest export earner, the chemical industry is in dire need of a lower sterling rate.