Euro blamed as Honda scraps plan for small car at Swindon

The Japanese car maker Honda yesterday scrapped plans to start building a new small car at its Swindon plant from next year, saying the high pound and weak euro were making it difficult to export profitably to eurozone countries.

The Japanese car maker Honda yesterday scrapped plans to start building a new small car at its Swindon plant from next year, saying the high pound and weak euro were making it difficult to export profitably to eurozone countries.

The surprise move came as the Governor of the Bank of England, Sir Eddie George, forecast a resurgence in the beleaguered single currency "at some point". In one of his most pro-euro verbal interventions to date, the Governor told a House of Lords' committee that the economic fundamentals of the eurozone would re-assert themselves.

Honda's decision was immediately seized on by the pro-euro lobby as further evidence of the damage being done to Britain's manufacturing base by its failure to enter the single currency. Other Japanese companies including Toyota, Nissan and Panasonic have also been hit badly by the weakness of the euro.

However, Jaguar, the luxury car maker owned by Ford, said yesterday that it planned to increase the proportion of cars sold in Europe when its new small car, the X-type, goes on sale next year. Unveiling the new Halewood-produced X-type for the first time, Jaguar said that the model would lift total production to 200,000 cars a year in 2002, more than half of which would be sold in Europe for the first time.

Honda had planned to begin production of the "super-mini" sized car next summer at a second plant being built adjacent to its existing factory at Swindon. But the company has now decided to bring supplies in from Japan instead.

At the same time, however, Honda will step up production at Swindon of its CR-V sports utility vehicle for export to the United States. Output of the Civic and Accord models will also increase.

A Honda spokesman said: "We haven't given up on the idea of small car production in Europe but given the high pound and weak euro we don't believe it makes sense at the moment."

He denied that the move put Honda's commitment to the UK in doubt and said it still intended to hire an additional 1,000 workers in addition to the 3,000 already employed at the £1bn Swindon works. Honda also maintained the decision to expand CR-V output would enable it to meet its target of producing 250,000 cars at Swindon by mid-2002 - six months earlier than plannned.

However, Simon Buckby, campaign director of Britain in Europe, warned: " Honda's is a stop-gap decision while it waits to see whether Britain joins the single currency. It is not sustainable for Honda's only plant in Europe to be uncompetitive in the eurozone."

Sir Ken Jackson, leader of the AEEU engineering union and another prominent euro supporter said: "This shows that unless we join the euro we will become more uncompetitive and find it more difficult to export into Europe."

Sir Eddie told the Lords' committee that the trigger for a resurgence in the euro would be a reversal of the massive capital flows into the US that have supported the dollar.

"The [economic] fundamentals are likely to reassert themselves," he said. "People say the euro is undervalued on the fundamentals and I agree, but it is over-ridden by long term capital flows.

"But even that prospect doesn't go on for ever and it will come to an end at some point. What I don't think anybody can judge is how close that is."

Sir Eddie said co-ordinated intervention by the Group of Seven nations had "posed the question to the markets" over whether that point had been reached. The euro gained against the dollar for the fourth day running yesterday. It rose as high as $0.8485 from $0.8411 at Monday's close.