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Insights into UK manufacturing

Support is needed for investment

Felicity Burch June 17, 2010 16:18

The PM said yesterday that the coalition government will,

“do what we can in the Budget to ensure that we have in this country a tax regime, support for apprenticeships and support for training that will want to make businesses locate, stay and invest in Britain."

This is encouraging news.

Whilst the budget will focus on the spending cuts and tax rises that will be needed to reduce the UK’s fiscal deficit, policy is required to support the business investment that will ultimately drive economic growth in the UK.

Business investment suffers heavily after a recession.

After the recession in the 1980s ended it took five quarters for levels of annual business investment to begin to grow again, and fourteen quarters for investment to return to pre-recession levels. After the 1990s recession ended it took ten quarters for business investment to make a sustained recovery.

Quarter on quarter change in GVA; and business investment in the 1990s

The size of public sector cuts to come mean that economic growth will only happen with private sector investment. The UK cannot afford to wait as long for investment to recover this time.

The future of Europe depends on...

Jeegar Kakkad June 10, 2010 09:16

Germany, according to Dani Rodrik, an economics professor at Harvard.

His rationale is that if much of Europe needs to get their respective fiscal houses in order, then Germany's half of the bargain is to reduce its own imbalances by increasing domestic expenditure:

"But trying to redress budget deficits in the midst of a collapse in domestic demand makes problems worse, not better.

So Europe needs a short-term growth strategy to supplement its financial-support package and its plans for fiscal consolidation. The greatest obstacle to implementing such a strategy is the EU’s largest economy and its putative leader: Germany.

If Germany wants the rest of Europe to swallow the bitter pill of fiscal retrenchment, it...must pledge to boost domestic expenditures, reduce its external surplus, and accept an increase in the ECB’s inflation target. The sooner Germany fulfills its side of the bargain, the better it will be for everyone."

Hmmmmm...a growth strategy to supplement fiscal consolidation? Might be a few lessons in that for the new Coalition government.

 

£1bn ... investment cuts this time

Lee Hopley November 24, 2009 13:03

Following the record falls in manufacturing business investment in the second quarter, today's data for q3 failed to bring much good news.  Investment levels in manufacturing fell another 10% in the three months to September - which leaves quarterly levels of investment more than £1 billion lower than pre-recession levels.

With the Pre-Budget just around the corner, this further fall makes the case for current support for investment - in the shape of increased capital allowances - to be extended for a further 12 months to April 2011.  Even for companies planning to invest in some brand spankin, productivity beating new equipment today the lead times involved could mean that companies might miss the cut off for the 40% rate - a point that EEF has been raising with Ministers and officials in the Treasury.

It's hard to ignore the lessons from previous recessions - once investment starts to fall it takes a long time for things to turnaround.  Global competitive pressures will undoubtedly intensify as the economic recovery gathers some momentum - the UK can't afford to wait years for investment to return to growth.

  

The £750mn magic trick

Jeegar Kakkad May 28, 2009 10:07

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..."

 

UK car sales down 24% in April

Chanderika Chouhan May 07, 2009 12:10

UK car sales fell for the eleventh consecutive month in April, falling by 24% according to the SMMT. The decline in April was an improvement on the 57% fall seen in March. 

Many customers are holding off buying cars until the scrapping incentive scheme starts on 18 May.

We remain postive that the scheme - where buyers can get a £2,000 discount on new cars when trading in a vehicle at least 10 years old - will help boost sales in the industry. So we'll be closely following sales figures over the next couple of months to see how many of you have rushed out to buy that new car...

 

 

 

Q1 contraction worse than expected

Lee Hopley April 24, 2009 14:04

National Statistics first estimate for GDP in the first three months of the years was published today. The fall in output - at 1.9% - was greater than most analysts were expecting and the biggest drop in GDP for three decades. The Chancellor's expectations on Wednesday, that the economy would contract by 1.6% in the first quarter have also been dashed. Further to our comments earlier this week, an even bigger bounce in economic growth will be needed in the coming quarters if we are to get anywhere close to Chancellor's forecasts.

The falls in output were widespread, but the biggest contraction, at 6.2%, was felt in manufacturing.  The numbers for the service sector paint a none-too-rosy picture either - transport, storage and communications was down nearly 3% and business services output dropped by almost 2%, leaving service sector output down by 1.2% overall. 

Early indicators of activity for the second quarter suggest conditions might be stabilising, but further falls in output are nevertheless likely in the next few quarters.  Given the pace of the decline in the economy in the first quarter, the measures put forward to support business in the Budget look even less generous if manufacturing is to play a role is getting us out of the doldrums and on track for better balanced growth in future. 

 

 

 

      

Our final verdict on the Budget

Steven Coventry April 24, 2009 08:51

Lee Hopley, EEF's Head of Economic Policy, gives an overview of the Budget and what it means for members.

 

Budget built on flaky foundations

Stephen Radley April 22, 2009 17:16

 

Today's Budget was never going to be received with rapture by business.

You can read more detail about what it means for your business in this briefing hot off the press from our economics team.

With public borrowing hitting £175bn this year, the Chancellor had limited room to provide business with much relief or to help it invest for the upturn.  Probably the most important measure was the £5bn scheme to compensate for the reduction in trade credit insurance, while the increase in capital allowances and the car scrapping scheme were also helpful. Firms would also have been relieved not to have been hit with any immediate significant rise in costs, save for the increase in statutory redundancy pay.

But it's the scary borrowing numbers and how the government will get them down that loomed large in everyone's minds. The Chancellor projects that public sector borrowing will fall from 12.4% of GDP this year to 5.5% by 2013, with higher tax receipts doing a third of the work and lower public spending growth the rest. But this assumes the economy returns to robust rates of growth, expanding by an annual 3.25% for three years from 2011, based on a return to its trend growth rate of 2.75% per year with growth temporarily boosted by picking up some of the slack built up this year.

The lessons from Japan in the 1990s suggest that the UK and the world economy face major challenges in dealing with the damage caused by the collapse of its banking system. Add in the danger of increased protectionism and a likely long-term increase in the cost of credit and those growth numbers look particularly optimistic.  Business will need to keep its fingers firmly crossed for the next few years that the numbers add up and that the government will not be tapping it up to plug the hole in its Budget. 

     

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Budget 2009: Car-scrapping scheme

Chanderika Chouhan April 22, 2009 16:05

The anticipation is over. After months of debate the Chancellor announced in today's budget plans to introduce a car scrapping scheme - which could be in place by as early as next month.

£300m has been allocated to the scheme, which offers £2,000 for motorists replacing a vehicle at least ten years old for a new one.

The funding will be shared by the car industry - with £1,000 to come from the taxpayer and the car manufacturers that sign up paying the other £1,000. The scheme will run until March 2010 - or until the funding runs out.

Unlike the European schemes, there are no restrictions on the new car being bought - it does not have to be a low-emission car. This is to help sales of luxury cars including Jaguar Land Rover and Aston Martin which are produced here in the UK.

This is welcome news for manufacturers - not just those in the automotive industry - but for the thousands of companies down the supply chain who rely on orders from the sector. And, as EEF research shows, there is pent-up demand in the UK and, with current exchange rates making UK cars cheaper, we may see an increase in UK-produced car sales.

But a lot will depend on how many car manufacturers sign up to the scheme.

 

Budget 2009: Public Finances

Jeegar Kakkad April 22, 2009 15:35

A key challenge for the Chancellor in today's Budget was how he was going to to restore credibility to the public finances without choking off economic recovery and growth.

In the end, he's opted for a mix of two parts slower public spending and one part tax rises.

Looking at the Budget in detail, public spending increases are set to slow, from 1.1.% per year to just 0.7% per year after 2011. But because those cuts fall in the next spending round - and to the next government - the Chancellor didn't have to provide any details on the hard decisions on which cuts to make.

The tax rises planned for 2011-12 are also significant:

  • £1.75 bn from fuel duty increases;
  • £1.80 bn from a new 50p rate on incomes over £150k; and
  • £4.82 bn from increases in NICs.

That's almost £8.5 bn (0.6% of GDP) in tax increase in 2011, the year the Chancellor expects the economy to grow by 3.5%.

The Chancellor also confirmed that the government borrowing will rise to £175 bn in 2009-10, requiring the government to issue £220 bn in gilts in 2009-10, a 50% increase over last year. Medium-term gilts account for half that increase, which could present a problem for the government if and when the Bank of England tries to sell back £75bn in medium-term gilts it will have bought because of quantitative easing.

The bottom line for UK manufacturers?

That if the Chancellor’s overly optimistic growth forecasts fail to materialise or if the government struggles to raise money in financial markets, businesses could face higher taxes in an effort to plug the gap.

 

Disclaimer
This is an informal blog about manufacturing and the economy written by EEF's policy and representation staff. While it is written from an EEF perspective, contributions should not be taken as formal statements of EEF policy, unless stated otherwise. Nor does it cover all the issues on which we campaign - you can check these out in more detail at our main site.

We welcome and encourage comments, but we reserve the right to remove any that are offensive or irrelevant. We are not responsible for the content of external internet sites.

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EEF helps manufacturing businesses evolve and compete.  We provide business services that make them more efficient and management intelligence that helps them plan.  Our work with government encourages policies that make it easy for them to operate, innovate and grow.

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