Could British industry make a comeback – MoneyWeek

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TheCityisalsostartingtosufferanastyhangoverafteryearsofhedonisticpartyingwithotherpeople’scash。

With‘financialandbusinessservices’constitutingsome30%ofBritain’sgrossdomesticproduct,anydownturninSquareMilefortuneswillhittheeconomyasawhole。

Asbankscontinuetocutlending,corporateprofitsandpersonalincomeswillbeaffected,andjobsandtaxrevenueswillbelost,makinglifeharderforindividualsandGovernmentalike。

ChancellorAlistairDarlinghasalreadycuthis2008economicgrowthforecastto1。

75%-2。

25%,wellbelowthe2。

5%-3%predictedinlastyear’sBudget。

Andalthoughtheofficial2009guessisareturntothelong-term2。

25%-2。

75%average,mostanalystsreckonthat2%isnearerthemark,withtherisksonthedownside。

CanBritain’smanufacturersstepuptotheplate?

Somecommentators,notablyRogerBootleofCapitalEconomics,suggestthataweakerpoundwillincreasedemandforourexports,aidinganeconomicrecovery。

AndtheideaoftheUKearningitscrustbyactuallymakingrealthingsdoessoundappealing。

ButalthoughBritainmayhaveadistinguishedindustrialpast,doesithaveafuture?

Aftertheearly1990srecession,swathesofindustrywerelaidwasteduetoamixofexcessivecostsandanuncompetitiveexchangerate。

Thecountrynowhasa£70bndeficitintradedmanufacturedgoods–byfarthehighestpost-warfigureataround7%ofGDP。

Tradeinservicessuchasaccountancy,insurance,banking,architectureandadvertisingreducesthedeficittoaround4%ofGDP。

HowdeepdoBritishindustry’sproblemsrun?

Very。

TheUKhasbeenprogressivelyde-industrialisingforover40yearswhileputtingmoreandmoreofitseconomiceggsinthefinancial-servicesbasket。

Since1965,sixmillionmanufacturingjobshavebeenlost,saysRolls-RoycechiefexecutiveSirJohnRose。

Thesectorhasnowshrunktoonly14%ofUKGDP,downfrom22%in1995。

Yetmanufacturingstillsupportsnearlyamillionjobs,83%ofoverallexportsandapproximately75%ofallUKresearch。

Sosomethingsarestill‘MadeinBritain’?

Yes,butthesadtruthisthatapartfromaworld-classpharmaceuticalindustryandareasonablyrobustarmsbusiness,Britainisnolongeratopmanufacturingdog。

TheFTSE100indexstarklytellsthetale。

Just10%ofBritain’soverallstockmarketvalueisinhealthcareandengineering,afarcryfromthedayswhenthenowDutch-ownedchemicalsgiantICIwasthemarketbellwether。

We’renotliketheGermans,who’vemaintainedtheirexportmomentumthroughthickandthin。

ArecentLegalGeneralstudyfoundthatTeutonicexportsbetween2003and2007grewsome60%,despiteflatAmericandemand。

Britain,bycontrast,merelyranupmassivetradedgoodsdeficit。

Haven’tweseenmanufacturingcomebackhopesbefore?

WhensterlingwasdrummedoutoftheoldExchangeRateMechanismin1992,hopeswerehighthatacheaperpoundwouldhelpBritishfactories。

ButuntilthisyearthepoundhasstubbornlyrefusedtoeaseenoughtogiveBritainacompetitiveedge。

From1973to2000,theUK’stradewithotherEUmemberswas£91bnindeficit,but£71bninsurpluswiththerestoftheworld。

Between1991and1996,theincreaseinBritain’sexportstocountriesoutsidetheEUwas44%greaterthantocountrieswithin。

Arethereanyraysoflighthere?

TheideaofUKplcasaglorifiedhedgefunddwarfingashrivelledmanufacturingbasemaybeoverstatingthecase。

GoldmanSachsdoesn’tbelievethe‘financialandbusinessservices’arenaisoversizedat30%ofGDP,asonly7%-8%is‘financial’,providing4%ofoverallemployment,just1%aboveGermanyandFrance。

Duringthelastninemonths,there’sbeenasea-changeintheforexmarkets,withthepounddivingagainsttheeurobyalmost20%,makinglifeeasierforBritishexporters。

Ofcourse,withtheUSdollaralsorecentlyinfreefall,thepound’svalueagainstthegreenbackhasremainedlargelyunchanged。

Andagainstabackgroundofdecliningworldgrowth,revitalisingexportmarketswon’tbeeasy。

WhatcouldrebalanceBritain’seconomy?

SirJohnRosebelievesit’stimetostartrebuildingBritain’sindustrialcapabilitiesbeforetheUK’sworld-classresearchisharmed。

Hehascalledforadiverseeconomyinwhich‘highvalue’manufacturingcounterbalancesathrivinghigh-valueservicesector。

RosecitesFrance’s‘WorldCompetitiveCluster’inToulouseasagreatexampleofindustry,academiaandgovernmentworkingtogethertocreateworld-classproducts,supporting94,000well-paid,highly-skilledjobsin1,200companies,makingaturnoverofe10bn。

ButRosesaystheBritishGovernmentneedstodevelopamuchclearersenseofdirection,aswellasstronglybranded,export-orientatedpoliciesforsomethingsimilartoworkintheUK。

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