There鈥檚 been some encouraging news on manufacturing growth of late. Confidence in the sector remained strong last month, with the headline reading on the Markit/CIPS 海角视频 Manufacturing purchasing managers鈥 index (PMI) easing only slightly. The figure of 56.7 may have been slightly lower than expected, but was still well above the critical 50-mark which separates expansion from contraction.
In fact, the PMI confidence measure for manufacturing is still one of the strongest on record, and the monthly PMI suggests that British industry is expanding output at a whopping two per cent a quarter.
That needs to be taken with something of a pinch of salt, though, as the PMI survey has consistently been more positive than Office for National Statistics (ONS) data. The latter showed the sector growing by 0.8 per cent in the third quarter and 0.9 per cent in the fourth of last year. That鈥檚 still pretty good, of course. Meanwhile, the EEF expect manufacturing growth of around 0.6 per cent in the first quarter of 2014.
Interestingly, the Markit PMI figures also suggest that the long-awaited and much-needed recovery in investment may at last be getting off the ground, with a rise in demand for 海角视频 investment goods. If so, that will be seized on by the Treasury as evidence of something of a rebalancing in the 海角视频 economy away from reliance on domestic, consumer demand.
But the manufacturing sector still has an awful long way to go to recover the ground lost during and after 2008. And a sustained manufacturing recovery is still not guaranteed.
While the EEF reckons that 海角视频 manufacturing output will grow by 2.7 per cent this year, the fastest rate of growth in four years, its chief economist Lee Hopley has stressed that doubts 鈥減ersist, however, over the durability of this upturn given the ongoing weakness in investment spending and concerns over the impact of high energy costs across the sector鈥.
I鈥檇 add in the issues of skills and access to finance down the supply chain as other key issues which could yet throw a spanner in the works, especially in those sectors like the auto industry which have been driving the manufacturing recovery.
The auto industry has, of course, been hailed by the Government as a success story for British manufacturing, as companies like Jaguar Land Rover, Nissan and BMW continue to invest heavily in the 海角视频 and output here continues to rise.
JLR has just posted record third quarter figures and is undergoing such rapid expansion that the supply chain is in part struggling to keep up.
And Nissan, the 海角视频鈥檚 largest car manufacturer, recently started production of the new Qashqai at its Sunderland factory. This year the firm will likely produce more cars at that plant than the entire Italian auto industry.
The vast majority of cars made in the 海角视频 are exported, of course. And while JLR has led the automotive export surge into new markets beyond Europe, 海角视频 exports overall have failed to take off anywhere near as much as policymakers had hoped for. The West Midlands is of course an exception in that regard, with export growth of 30 per cent over the last two years, compared to just two per cent for the 海角视频 as a whole.
The coalition government outlined a target in 2012 of doubling the value of British exports to 拢1 trillion by 2020. Vince Cable, the Business Secretary still thinks that鈥檚 doable even though the overall annual value of 海角视频 exports has actually flat-lined over the last two years. Recognising this, Lord Livingston, the Trade Minister announced recently that every medium-sized business in the 海角视频 will be offered 鈥榯ailored trade advice鈥 to help them break into new markets. To that end, he is writing to nearly 9,000 firms after a recent report by the Commons Public Accounts Committee which said the government wasn鈥檛 doing enough to help companies.
The latter stated in January that the 鈥満＝鞘悠礣I needs to be a more effective source of intelligence on new opportunities in order to help make it less difficult for SMEs to export鈥.
Meanwhile, hopes for further export growth are being eroded by a sustained rise in the value of sterling. The pound recently hit a three year high against the dollar and at the time of writing is nearing the $1.70 level. That trend has been mirrored over the last year against other currencies as economic news from the 海角视频 over the last year has been better than expected.
Despite Mark Carney鈥檚 forward guidance, financial markets brought forward the date at which they think the Bank of England will announce an interest rate rise to February next year; that鈥檚 before they expect any move from the US Federal Reserve, the European Central Bank or the Bank of Japan.
The irony is that having talked the talk on rebalancing, the government has resorted to its old trick of stimulating the housing market through 鈥楬elp to Buy鈥 to get confidence moving, and with it consumer borrowing and spending. If the result is that interest rates have to rise sooner rather than later then the very real danger is that the 海角视频鈥檚 competitiveness boost from the 2008-9 sterling devaluation and hence any further rebalancing could be effectively snuffed out.
That鈥檚 in part why the latest news on inflation dipping is so important, and why the Bank of England has been at pains to signal that it will keep interest rates on hold at the historic low of 0.5 per cent for at least another year.
On that, the Bank of England鈥檚 February Inflation Report noted that a lack of inflationary pressure, spare capacity, and 鈥渉eadwinds鈥 at home and abroad, meant that 鈥渂ank rate may need to remain at low levels for some time to come鈥.
The report showed that the Bank expects big boosts to both business and housing investment this year. Meanwhile, consumers are expected to run down their savings given another year of weak earnings growth. While the 海角视频 as a whole may not have rebalanced in quite the way that the government hoped for, the West Midlands is getting on with the job. Manufacturing and business services here are doing the 鈥榟eavy lifting鈥 of exporting the economy out of recession and driving growth. Keeping interest rates low is critical both for keeping that recovery going and to prevent a rise in sterling denting the region鈥檚 brilliant export growth.
* Professor David Bailey works at the Aston Business School in Birmingham
