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THE INVESTOR
ANALYSIS
ECONOMY
inthe
balance
There’s still some way to go before Chancellor
George Osborne’s vision of a ‘march of the makers’
sees the UK become a manufacturing powerhouse
By David Smith
F
ive years ago, when George
Osborne was almost three
months away from becoming
Chancellor of the Exchequer, he
gave a lecture at City University
in London called‘A New Economic Model’.
Central to that model was an economy that
would no longer be reliant on consumer
spending and rising household debt, but
would instead be‘rebalanced’.‘We will
increase savings, business investment and
exports as a share of GDP,’ he pledged.
It is a theme that Osborne warmed to
once in office.There would, he said, be a
‘march of the makers’, with recovery built
on strongly rising manufacturing output and
less dependency on
Britain’s successful
financial services
industry.
And why did he
want a revival of
manufacturing?To
help cure the other
Achilles’ heel: a trade
deficit that has grown
alarmingly in the period since Britain ceased
to be the workshop of the world.
An economy that makes more things,
invests and saves more, and achieves export-
led growth is healthier than one that doesn’t.
So the Paris-based Organisation for Economic
Co-operation and Development, in its 2013
report on the UK economy, applauded a
strategy aimed at‘the necessary rebalancing of
the economy away from debt-financed private
consumption and public investment towards
exports and investment’.
The CBI, in its 2011 report
A vision
for rebalancing the economy
, noted the
importance to the economy of compensating
for a government cutting spending and
‘constrained’ consumer spending, with
stronger business investment and trade.
So how has it gone? Rebalancing can be
measured in a number of ways.The easiest
is to look at the relative performance of
manufacturing, construction and services.
Between the second quarter of 2010 – when
the coalition took
office – and the
fourth quarter of
2014, overall GDP
rose by 7.8%.Was
there a‘march of the
makers’, or a building
boom? Neither – the
recovery has been
driven by services,
with its output up by 10.8% over the period.
Manufacturing, meanwhile, was producing
only 3.1%more at the end of 2014 compared
with the spring of 2010. Construction has
fared even worse. Its output at the end of
2014 was a wafer-thin 0.9% up on the second
quarter of 2010. However, financial and
business services have seen a 15.2% rise.
If we look how the three big sectors are
doing in comparison with their pre-crisis
position, the rebalancing story is no better.
Manufacturing is producing 4.4% less than
it did in early 2008, just before the economy
dipped into recession, while construction
output is down 7.9%. Output of the service
sector, by contrast, is up by 8%.
In fact, as the Office for National Statistics
reported recently, the overall annual trade
deficit in 2014, £34.8 billion, was the biggest
since 2010, when it was £37.1 billion.The
goods deficit, also known as the‘visible trade
deficit’, was a massive £119.9 billion, more
The recovery has been
driven by services,
with output up
by 10.8%
