After decades in which the fortunes of Britain’s battered manufacturing sector were, notoriously, in thrall to the vagaries of the pound, more recent times have seen the nation’s leaner, meaner industrial base regarded as more resilient to sterling’s ups and downs.

During the past three years, and over past year in particular, the pound has been notably strong. During 2007, the year that saw sterling breach the $2 watershed, the trade-weighted index of sterling’s overall value averaged 103.52 - more than 12 per cent above its average throughout the Nineties, and a level that in the past would have triggered shrieks of pain and demands for action from industrial companies.

Yet last year was far from catastrophic for manufacturing. For much of the year, the sector still managed to register modest growth in its output. Year-on-year, this was up by 0.3 per cent in October, the last month for which official data have so far been released.

By the closing months of 2007, however, signs had begun to emerge that the combination of a strong pound, along with tightening credit conditions and a slowing global economy, might again test manufacturing’s new-found resilience.

Against this backdrop, the sharp slide in sterling seen in recent weeks, as currency markets have grown fretful over UK prospects and bet on interest rate cuts, will be hailed by industry as offering some respite, and will bolster the sector’s spirits at a time of heightened vulnerability. Yesterday, sterling was firmly back below $2, at a 16-month low against the yen of Y214, and record lows against the euro. The trade-weighted index, at 96.5, was at its lowest since September 2003.

A weaker pound should not, though, be seen as a panacea for what look certain to be tougher times for industry during the next 12 months.

The pound looks exposed to a further, perhaps steep, drop this year. Yet while that will make Britain’s goods more competitive abroad, this gain will come at a time when global demand for goods of all kinds is also set to fall significantly.

At the same time, the pound is sliding because of a deteriorating outlook for the domestic economy, which will sap industry’s home market demand.

And if a weaker currency makes British goods cheaper abroad, it will raise the cost of imported fuel, components and raw materials for much of manufacturing, amplifying the squeeze on industry’s margins at a time when its costs have already been rising at a double-digit annual pace. In turn, the added inflationary pressures of dearer imports may also conspire to slow, or limit, cuts in interest rates.

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