Britain: Why The Factory Gears Are Grinding

British manufacturers can't seem to get a break. Just as the sterling's recent decline from oppressive levels began to raise hopes for a factory turnaround, worries about a global slowdown in demand are now clouding the outlook. Industrial production fell in October for the second month in a row after growing steadily since March.

Moreover, manufacturers can't count on an easing of monetary policy anytime soon to lift domestic factory orders. While interest rates have peaked, still-strong demand for services and an expected boost from government spending in 2001 will make the Bank of England's Monetary Policy Committee cautious about rate cuts. As expected, following a slight lowering of its growth and inflation projections for the coming year, the MPC on Dec. 7 left its benchmark interest rate at 6% for the tenth month in a row.