our own economy - including large parts of manufacturing. and things could remain difficult for a time. but it won't last for ever. i am " cautiously optimistic " that the overseas environment will improve as we move through the year, and that by this time next year we here in the uk will have seen a return to somewhat stronger and better balanced growth, with unemployment not far above its recent lows, and with continuing low inflation. if that is indeed how things turn out, we will have weathered the international storm as well as anyone could reasonably have expected. so it is in the hope - and indeed the expectation - of improving prospects for the internationally exposed sectors of british manufacturing that i ask you all now to rise and to join me in a toast to the engineering employers federation, and it's president, mr paul lester.

at under 950, 000, was the lowest for 26 years. now some of you - given what's happening to your own businesses - are probably thinking that i must come from a different planet. and yes, we do have a problem. once you look beneath this apparently benign surface of the economy as a whole, you find very substantial differences between many internationally - exposed sectors of the economy - including particularly many manufacturing businesses - which have recently been having a really tough time, and other businesses largely serving our domestic market which have been doing pretty well. there are two main reasons for the pressures affecting the internationally - exposed sectors : the synchronised economic slowdown over the past year or so in all major industrial countries, on the one hand, and the puzzling persistent weakness of the euro in foreign exchange markets not just against sterling but even more against the dollar, on the other. what that has meant for the uk manufacturing sector is that output in the year to november ( the latest month for which we have internationally comparable data ) fell by 5. 7 % and employment fell by 153, 000 people, or by nearly 4 %. for what it's worth, we were not alone. comparable figures show that manufacturing output fell by over 13 % in japan, by 6. 7 % in the us and by 4. 3 % in germany, while manufacturing employment fell by 5 % in japan, over 6½ % in the us and around ¾ % in germany. the frustrating thing is that, with the best will in the world, there was not much that either we at the bank or the uk government could have done to ward off the pressures on uk manufacturing, which had their origins abroad. that's fairly obvious where we are talking about the global slowdown - with negative growth last year of about 1¾ % in japan ( fourth quarter on a year earlier ) and roughly zero growth in the us and germany. we can go to international meetings and encourage the respective authorities there to stimulate their economies, but there is nothing that we can do about it directly ourselves. it's perhaps less obvious that we cannot control the exchange rate. many people think that we could weaken sterling against the euro quite simply by cutting our interest rate relative to the interest rate in the eurozone. but it's not as simple as that. the us has reduced its interest rate far more aggressively than the ecb over the past year or so, but the dollar is actually stronger against the euro than it