EEF blog

Key data releases this month, with further details available in our June Monthly Briefing.

The oil price has rebounded, pushing above $66 per barrell, a six month high.

Alphaville points out the strong link between oil prices and the value of the dollar, and the chart above from BarclaysCapital appears to provide pretty convincing evidence.

What's going on? Is the oil price driving the value of the dollar or vice versa?

Actually, the price of oil and the dollar are reflecting the same sentiment: that emerging economies are starting to grow again, while recover in the US - like the UK - is likely to be constrained by rising interest rates. As Barcap's David Woo suggests:

"investors are concerned about the lack of a credible exit strategy from QE and the potential long-term consequences of  the massive buildup of US government debt and contingent liabilities...[their] short-term deflationary fears are slowly giving way to long-term inflationary worries."

It's early days, but the government's car scrappage scheme seems to have given a bit of a boost to automotive demand.  The government has released figures today showing more than 35,000 orders since the announcement of the £2000 scrappage subsidy. This, they argue, equates to one scrappage scheme order out of every five new car orders in this period.

Certainly every time you turn on a TV there seems to be a new car advert urging consumers to make the most of the scheme and this will provide some much needed good news for the UK automtive sector as it hold its breath and awaits the outcome of the ongoing political manoeuvring around the GM decision...an annoucement, on which, is expected at lunchtime today

Superfoods in Southampton? Nanotech in Newcastle? Wind turbines in Wales (well Cardiff at least)?

That's the verdict of a new report published today by HSBC Commercial Banking and the Future Laboratory, a forecasting and strategy consultancy. The authors argue that new technologies and ways of working will transform the UK's business landscape and lead to new business hubs developing around emerging markets such as renewables and nanotechnology.

Many of these hotspots will be outside London and the South East. Dundee, for example, is predicted to become a centre for computer gaming, biotechnology and nutraceuticals’ (so-called 'superfoods' with health benefits). While Durham and Bristol (nanotechnology), Manchester (stem cells and robotics), and York (biotechnology) could also become hotspots for the technologies of tomorrow.

Of course, while this is an interesting excercise it is extremely difficult to predict these patterns with any great certainty. The report also overlooks existing developments in this area (the North East, for example, is already making great strides in attracting investment in the renewables industry; the same is true on nanotech in Yorkshire).

 Those points aside, however, the report does draw the right overall conclusion: the UK will not address some of the chronic imbalances in our economy unless we end our ongoing and historical regional disparities and grasp the opportunities of these kinds of new technologies. In the next few week EEF will be publishing a report which will have more to say on this subject...

When the Chancellor announced a £750mn Strategic Investment Fund designed to invest in small, growing hig-tech companies, businesses were left with two thoughts.

The first thought was, 'well done on recognising the financing problems facing innovative manufacturers in a recession'. The second was 'is this new money and how can we use it'.

EEF looked at the details of the Budget, spoke with officials in government and so believed that this was indeed, new money...so where's the magic trick?

The money doesn't actually exist because there is no mechanism for deserving businesses to actually access the funding. Manufacturers we've spoken with have gone around the houses in Whitehall and not a single official in any department or agency can tell them how the SIF will operate.

In what's becoming an all to disappointing habit, the government announced headline-grabbing support for business without actually providing that support to business.

It was niftily done, and Jonathan Guthrie of the FT perfectly captures the frustration of innovative manufacturers:

"While we know deatils of MPs' expenses down to the last guilty packet of digestives, we do not know how and when the £750mn will be disbursed, or on what...This is a transparency scandal as big as MPs' attempts to conceal their expenses..."

Eleven's a crowd...

Talks over the future of GM Europe brokedown late last night, leaving the UK's two Vauxhall plants with an uncertain fate.

GM has made it clear that GM Europe will make a loss this year, in part because of the downturn, but also because it believes there are three too many GM plants in Europe. News reports suggest that the Antwerp Opel plant is in line to be shut, along with one or both of the UK factories.

What did the talks breakdown? Money and jobs.

With GM facing bankruptcy in the US, GM Europe needs short-term financing to stay afloat while a suitable buyer came to the rescue. But the German government balked at demands for extra cash and guarantees.

In the UK, the problem for the government is intensenly political: 4,300 jobs directly at stake and the Ellesmere plant was favourite to produce the Vauxhall Ampera - the European version of GM's electric car - by 2011.

How will its aim to seek a commercial solution to the GM Europe problem stack up against its rhetoric on electric vehicles from just last month?

The credibility of its 'New Jobs, New Industry' slogan is being put to the test.

The big business story of today is the UK government joining the debate over the future of GM Europe.

Why the sudden interest in GM Europe?

Well, the 5,000 employes at Vauxhall's Ellesmere and Luton plants is a start. But the crisis at GM and its European arms is also coming to critical stage this week.

As GM nears bankruptcy, the whole business is being restructured. The European arm - GM Europe which includes Vauxhall and Opel - is being sold to the highest bidder. But because Opel employs 25,000 of its 50,000 auto workers in Germany, the bidders are offering to spare jobs in Germany in return for the German government's financial and vocal support. Although GM (and by proxy the US government) gets to make the final decision, it's an election year in Germany and their government is set to announce its preferred bidder today or tomorrow. 

The problem for the UK is that any bidder getting the German government support will likely need to cut jobs elsewhere in GM Europe...a prime target being Vauxhall's UK operations.

Hence the Business Secretary Lord Mandelson intervening heavily in the debates. But the FT quotes a government insider as saying:

“We’re pedalling hard to get a commercial solution and not an overtly political one.”

Given that GM is being run by the US government, the Opel deal will be partly financed by the Germans, Fiat - the primary bidder - is being pressured by the Italian government, and two other bidders are a Russion oligarch and a state-owned Chinese auto company, the commercial future of GM Europe and the UK Vauxhall plants is intensely and overtly political. 

We'll keep you updated on the progress of the German decision and any implication for UK manufacturing.

While the government has won plaudits for backing nuclear energy in the UK, are they sending the right signals to industry?

The chief executive of EDF, Vincent de Rivaz, thinks not.

Between government subsidies for wind and marine power and an unstable carbon price, De Rivaz believes the nuclear industry isn't competing on a level playing field, hurting the commercial viability of new investments in the UK.

Why is the nucler industry facing an uphill battle in the UK? For long-term investment decisions like in new nuclear power infrastructure, a handy rule of thumb is:

Investment = Revenue * Certainty

Currently, the industry has little certainty over the potential revenue.

Carbon prices - and hence potential revenue - are unstable because of volatility in energy prices and the cost of emissions permits in the EU trading scheme. This instability creates uncertain about revenues for new nuclear plants, and that uncertainty is constraining investment. Without a more stable carbon price or support for investment from government, the commercial case for investing in new nuclear capacity in the UK looks increasingl weak.

As de Rivaz puts it:

"We need a plan that everybody can refer to. not with too many potentially conficting targets and distorting subsidies. But with a simple, level playing field tool: a robust carbon price with a realistic floor."

This week:

For more check out our weekly Economic Update.