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THE INVESTOR
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than £20 billion up on 2010. It fell in only one
year, 2011, before resuming its relentless rise.
The broadest measure of Britain’s external
position, the current account deficit, reached
a record 6% of GDP during 2014.
We know why. Exporters had the bonus of a
big depreciation in the pound during the worst
of the crisis.The subsequent strengthening of
sterling, partly as a result of the eurozone’s
problems, has removed some of that
competitive advantage. Export performance
has been by no means terrible, but it has been
a long way from creating export-led growth.
The picture is not all bad, however. Some
accuse Britain of having had a debt-driven,
consumer-led recovery, but it is hard to
make that case. Consumer spending was the
same proportion of GDP in 2014, 61%-62%
depending on how it is measured, as it was in
2010. Household debt has barely increased
in cash terms since before the crisis and has
fallen in relation to income.
A recent McKinsey report noted that
Britain is one of the few countries where
this has happened.The growth in consumer
spending has occurred mainly because
strongly rising employment has put more
money into the economy, even when average
earnings have been depressed.The households
saving ratio – the ratio of household income
DRIVING SUCCESS
If every sector of the economy and every
element of manufacturing was like the car
industry, Britain would be in much better
shape. During the financial crisis the Labour
government introduced the controversial
£400 million ‘scrappage scheme’, to encourage
people to trade in their old cars for new ones.
The recovery since then has been
impressive. In 2014 more than 1.5 million
cars were produced, an increase of more than
50% from 2009. The value of car exports has
increased from £12 billion to £26 billion over
that period. The traditional trade deficit on
cars has narrowed sharply – it was £2.5 billion
in 2014 – and there have been times in the
past two years when it has been in surplus.
The results reflect Britain’s success in
attracting the Japanese manufacturers Nissan,
Toyota and Honda decades ago and, more
recently, the takeover of Jaguar Land Rover
by India’s Tata Group. But it also reflects the
success of the Automotive Council, set up in
2009 as a new type of co-operation between
industry and government.
As well as a strategy for raising skills and
investment in the industry, the council is keen
to boost British-sourced components used
in British-made vehicles, and setting a 20- to
30-year plan for making Britain the global
centre for the development and production of
low-emission vehicles.
Balance sheet
The drive to rebalance the UK economy
away from consumer spending and household debt to
a model of increased savings, business investment and
rising exports, is easier said than done.
saved to household net disposable income
– currently 7%, is down from almost 11%
at the time of the last election, but above pre-
crisis levels.
Even so, the fact that on some measures
the economy has not become even more
unbalanced – though it clearly has on others
– is of scant comfort and the‘march of the
makers’ has yet properly to get going.That is
a task for the next parliament.
ANALYSIS
