‘Sell more, buy less’ King tells Black Country businesses

BANK of England Governor Mervyn King has advised Black Country business leaders to ensure they “sell more and buy less” from abroad in order to rebalance the economy after recession.

Speaking to an invited audience at the Black Country Chamber of Commerce in Dudley – on the eve of the Government’s Comprehensive Spending Review, Mr King said: “To achieve a rebalancing we need to sell more to, and buy less from, economies overseas.

“To close the gap between exports and imports, more than half a million jobs will probably need to be created in businesses producing to sell overseas – compensating for fewer employment opportunities serving UK consumers or the public sector.”

Mr King said such an adjustment was unlikely to be smooth. Unless the fall in domestic spending coincided with a necessary increase in net exports, he warned the path for the economy would be “bumpy”.

“As a result, it is dangerous to become fixated by the precise profile of quarterly growth rates. The sensible approach is to focus on the big picture. And the big picture is that total output is roughly 10% below where it would have been had the crisis not occurred.

“The conditions are in place to support a rebalancing at home: in particular the past depreciation of sterling will make UK-produced goods more competitive at home and abroad. But domestic spending has already fallen before a pickup in net exports.”

The comments will have resonated with the audience, which is trying to spearhead a manufacturing-led recovery based around increasing exports.

Mr King said the biggest threat to an export drive came from a trade war between the traditional economies of the West and the rising economies of the East.

For full live coverage of today’s spending review announcement, see TheBusinessDesk.com this afternoon

He warned against a 1930s-style trade war and urged all countries to unite on a common fiscal policy.

“The biggest risk to an orderly rebalancing of our economy comes from abroad. Efforts to restore world demand are impeded by the scale of the imbalances in trade, which are beginning to grow again. If the UK and other low-savings countries are to rebalance their economies, demand for their products must increase overseas.

“Lower domestic demand in the deficit countries must be accompanied by strong growth in domestic demand in the surplus countries if the world economy is not to slow. That will require a change in the strategy of those countries that have built their own policies around export-led growth.”

He also warned that the UK had to save more as the effects of the financial crisis were likely to continue for some time.

He said the next decade was likely to be “sober” as the UK recovered from its recessionary hangover but added the sobriety was necessary for the country’s long term economic health.