Rover threat to relocate abroad

Rover, which employs 40,000 people in the UK, warned today it may be forced to shift production abroad because of the damaging effects of Britain's soaring pound.

The company has begun slashing the number of UK-made components in its new range of cars, and taking parts from abroad. The ultimate step will be to build the vehicles elsewhere in Europe, a senior executive said today.

The move threatens not only jobs at Rover's four major plants at Swindon, Oxford, Birmingham and Solihull but also thousands of jobs in Britain's components industry, which employs a further half a million people.

Proposals to build Rover's range of cars, including a new Mini and a new luxury car, at European plants have been put forward in a closely-guarded plan to protect the firm from what car chiefs call a "currency crisis".

Rover spends £4 billion a year on components for its vehicles - including the Land Rover and Range Rover models and the MGF as well as its family and fleet cars such as the 600, 800, 400 and 200 - with 90 per cent of parts currently flowing from the UK's components industry. The company has confirmed this will be cut to 75 per cent for a new model. Rover, which despite being owned by German company BMW loudly stresses its "Britishness", says it would not totally abandon Britain where it plans to build 540,000 vehicles this year.

A senior executive confirmed: "Rover will continue manufacturing here because its roots are a strong brand value. But the currency situation is so serious that we have to consider the possibility of building abroad."

Walter Hasselkus, Rover chairman, has said the currency situation will prevent the firm from achieving its break-even target by the end of the decade and that losses added up to "hundreds of millions of pounds".

Meanwhile, industry leaders and the City warned the Bank of England that its probable hike in interest rates this week - the seventh since Labour took office - could tip the whole economy into recession.

With manufacturing output on the verge of entering negative figures for the first time since the recession of 1992, the predicted rate rise of 0.25 per cent - setting the new rate at 7.75 - could have disastrous consequences.

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