Manufacturing’s major role in economic recovery predicted
THE UK’s manufacturing sector is being hailed as the sector to lead the country out of recession by a leading economist.
According to Roger Bootle, economic adviser to Deloitte, the manufacturing sector’s share of the economy could temporarily grow from 11% to 13% over the next decade as the financial sector’s contribution shrinks to an possible 5%.
In the business advisory’s latest Economic Review Mr Bootle said that the drop in the pound would help the UK play to its traditional exporting strengths such as pharmaceuticals and aircraft.
He continued: “Moreover, the trade deficit can be reduced, and aggregate demand boosted, just as easily by lower imports as by higher exports. In the short-term, this is the main route through which the lower pound will boost the economy.
“Meanwhile, the services sector is particularly fertile ground for new or nascent services to spring up and expand, such as the provision of “green” consultancy services. And both the online and supermarket sectors could yet broaden their reach even further.”
The renewed emphasis on manufacturing could help boost trend productivity in the economy given that the sector lends itself more easily to technical progreess than the services sector.
However, Mr Bootle said the regional implications might be smaller than commonly thought as disparities have shrunk considerably as manufacturing dependent regions such as Yorkshire have diversified their economies.
Mr Bootle also warned that although the “enormity of the economic and social costs of the current recession” should not be underplayed it was important to remember that a world beyond the credit crunch existed.
“Equally, it would be misleading to talk about when things get back to normal,” he added.
“After all, what is normal? The economy surely cannot return to how it was before. The economy over the next 10 years will look significantly different to the economy of the last 10 years.”
His predictions include reduced consumer spending and government cuts or freezes. The economist also doesn’t share the Government’s “green shoots” optimism suggesting that the economy will shrink by some 4% this year and 1% in 2010.
“The star of the show will be the external sector,” said Mr Bootle.
“Although concerns have been voiced about whether the UK’s manufacturing sector has shrunk too much, I see no reason why it cannot experience a mini-revival. Meanwhile, it is not just manufactured goods which will benefit from the drop in the pound – so will exports of services, from tourism to consultancy services.
“The steep drop in the pound and the quantitative easing deployed by the Bank of England have raised fears of a surge in inflation. But I still think that the bigger immediate risk is a period of deflation, reflecting the creation of a large amount of spare capacity in the economy.”
