For Jaguar Land Rover, 2011 proved to be a landmark year. The company delivered strong profits, invested over £1.5 billion in innovation and new products, created 3,000 jobs and breakthrough products such as the Range Rover Evoque.

In terms of numbers, sales were up almost 18%, with 80% of our volume coming from 177 export markets. And we ended the year with a strong showing, with over £500 million in profits and 37% increase in volumes in the fourth quarter alone.

Yet this remarkable turnaround since 2008 isn't due to investment from our parent, Tata Motors. The reality is that it's down to JLR's own investment in R&D and new products. Tata Motors is a long-term, strategic owner determined for us to be financially independent and sustainable business.

We're going stand or fall on our own, and that's why simply keeping pace with the competition isn't good enough to guarantee continued success.

JLR need to keep moving faster. We need to invest more in design, innovation and engineering. We need to keep developing new products.

From concept to final production, each Jaguar and Land Rover is made in the UK. Consequently, we're investing in the UK because it provides a natural launching point for our future growth and expansion.

Our two state-of the art R&D facilities in the UK are designing and developing 40 new products and variants. We're investing in our three UK manufacturing plants to handle a significant ramp up in volumes. And economies of scale mean we can grow in the UK, while helping to keep our costs base under control.

Looking at specific investments, this year we will begin construction on a £350 million state-of-the-art engine facility near Wolverhampton. We're also investing £100 million in an advanced research facility at Warwick Manufacturing Group to accelerate innovation. And since we can't innovate in isolation we've got TSB-backed projects on hybrid and plug-in hybrid technology.

As a large, profitable company we realise we're in a unique position to invest heavily in R&D and new products. We also successfully raised a £1 billion corporate bond last year and were fortunate to receive some government support - including through Regional Growth Funds - for our expansion.

But our investment in the UK poses a critical challenge: can our UK supply chain expand fast enough? About 50% of our materials budget goes to UK suppliers. But the UK auto supply chain is already at capacity, meaning further growth must come from new investment. OEMs like being near supplies that with high logistics costs or a critical business impact. So improving supply chain finance is vital to our continued success in the UK.

We know the world has changed. Our competition doesn't just come from Stuttgart, Sindelfingen and Inglestadt, but from Singapore, Shanghai and Sao Paolo as well.

And, while a key element of our global growth plan will be overseas expansion, we want this expansion to build off our investments in a bigger and stronger UK presence.

-- Jeegar Kakkad is UK Government Affairs Manager at Jaguar Land Rover

Well, I'm not too surprised.

In June we saw big high-street names like HMV, Habitat, CarpetRight, Thorntons and Jane Norton closing down shops or going to administration. And the news since then has, if anything, only made consumers more cautious about spending, especially on big-ticket items. In turn, this has retailers planning earlier and deeper Christmas sales to bring the punters in. So it is inevitable that with retailers nervous about sales, their banks and credit insururs get nervous about their exposure to the retail industry.

Cue today's story in the Financial Times on credit insururers keeping an eye on the retail industry:

If a retailer’s finances are considered too risky, trade credit insurers can withdraw or restrict levels of cover being offered to their suppliers with potentially disastrous consequences. As seen with HMV and Woolworths this can disrupt the supply chain and cause a squeeze on working capital, which a retailer may not survive.

In the depths of the last downturn (take a look at our coverage here, here and here), much was made of the unsophisticated, blanket approach credit insurers took to withdrawing coverage from manufacturers. It didn't matter what the companies sales, markets or financials looked like, if it was exposed in anyway to the auto industry or to construction, then coverage was withdrawn.

The FT's article picks up on a key point of advice: keep close to your credit insurer so they have greater knowledge - and hence confidence - in your business.

Yet this approach didn't help some manufacturers last time round, and many have stopped using the product altogether. And others may be wary of sharing financial data with insurers because they've been burned by a similar approach with their banks.

We'll be watching to see if and how this credit insurance develops. The linke between retail sales, auto sales and manufacturing is how the credit insurance problem spilled over from the high street to industry. Hopefully it won't happen again.

There's been a bit of banter on the back of the GDP data talking down manufacturing, and suggestions that the trend is towards renewed recession.

Indeed as Adam Lent points out, the broader industrial sector (including utilities and extraction) has declined two quarters in a row - meeting economists' rule-of-thumb definition of recession.

Yet, we urge caution on talking down manufactuing specifically, in part because a weak April and a quirk of the statistics masks a rather strong May and June for manufacturing.

Here's what today's quarterly data suggests about the monthly production figures for manufaturing:

Monthly manufacturing output, 2006=100

Source: ONS

So the rather sharp dip of 1.6% in April was more than made up by 2.1% growth in May and June. So, absolutely, we see that April was a tough month, not just because of the royal wedding and the bank holidays, but because that's when the Japanese tsunami hit UK production the hardest.

But there's also a statistical quirk at play.

Even though manufacturing output ended the quarter higher than where it started, output officially fell by 0.3% across the quarter. That's because the quarterly data are produced through averages. A weak April dragged down the q2 average, even though output ended the quarter higher than any point this year. (The June index number is implied by today's quareterly data). So compared to the quarterly average in q1, q2 is weak, even though output was higher in 2 of 3 months in q2 than in any monh in q1.

And if you go back through the data, you'll see that manufacturing output is at its highest since activity fell off a cliff in November 2008.

Monthly manufacturing data for 2011, 2006=100

Source: ONS

But don't take this as economists having it both ways or spin from vested interests. Manufacturing outpu remains 9% below its pre-recession peak and was fairly flat in the first half of 2011.

That's because manufacturers in the UK have been grappling with some fairly fierce headwinds: rising commodity prices, skills shortages, a lack of finance for SMEs and weakness and uncertainty in key export markets have all weighed on the sector this year. Nor do they look like abating in the second half of 2011.

So while we're not complacent that a strong manufacturing rebound in 2010 has given way to a more modest 2011, we do think May and June offer encouraging signs that shouldn't be played down.

NB: If you clicked through Duncan Weldon's blog on the latest IoP data, you'll see he's talking about 3-month on 3-month changes, while this post flags up the monthly figures. Typically, it's better to look at the 3-month data as Duncan does because it gets rid of monthly volatility to provide a truer picture of trends. I've focused on the monthly numbers here, not because they help prove my point, but because we need to understand why April is bad, and how manufacturing responded afterwards. In this case, the quarterly averages simply wipe away any of the useful information coming from the data.

In his column this morning, Allister Heath takes a look at whether the government is getting to grips with public spending and worries that "growth remains to weak for comfort." As he says:

"[The Chancellor] desperately needs more GDP growth.
 
Osborne’s mistake has been to rely too much on tax hikes, especially April’s job-destroying national insurance increase inherited from Labour, as well as January’s VAT increase, to protect spending. He hasn’t benefited politically from this choice...and the taxes are damaging growth.

Osborne is right on austerity (though not always on how to achieve it) – but wrong not to be deregulating the economy, cutting the most damaging taxes and truly making the UK open for business again."

Heath picks out the NICs and VAT rises as the primary drags on growth, but a note on corporate tax reform from the House of Commons Library filed last week picks out tax rise that's damaging for SMEs and manufacturing investment: the recent cuts to capital allowances.

The note quotes from the IFS, saying:

"the largest [negative] impact on those firms with capital-intensive operations – with long-lasting equipment and machinery – that currently benefit most from the capital allowances. This is likely to apply more to firms in the manufacturing sector..."

And from the HoL Economic Affairs Finance Bill Sub-Committee, which recommends post-implementation reviews to monitor the outcomes of the reforms, because:

"the package of reforms may be unbalanced across business sectors, disadvantaging small and medium-sized businesses and manufacturing..."

The government believes, that on the whole, it's corporate tax reforms will boost investment, including in manufacturing:

"The additional reductions in corporation tax rate and the extension of the short-life assets regime will help to increase further the levels of investment by business. We estimate that the overall effect of these measures will be to reduce the tax liabilities of the manufacturing sector by around £700 million by 2015."

Maybe, but the lack of private sector investment over the past year suggests Allister Heath might want to add capital allowances to his list of tax changes that are damaging to growth.

Amidst the durm and strang of the Eurozone soveriegn debt/insolvency crisis, Der Spiegel pays its respects to the Euro:

(Abruptly and Expectedly: An obituary for a common currency; hat tip: FT Alphaville)

Last Friday, FT Alphaville blogged about 'A claimant count quandry', flagging up the debate on why the claimant count rose in last Wednesday's labour market data.

Howard Archer of IHS global Insight is quoted as saying:

"The 19,600 spike up in May in the more timely claimant count measure of unemployment is worrying, as it cannot be fully put down to recent changes in the benefits system. This is the third successive rise in claimant count unemployment."

Philip Rush of Nomura, however, suggests the rise is all down to recent changes in the benefit system:

"But the relatively bleak performance on the claimant count measure is largely the result of classification issues. Specifically, since 25 October 2010, lone parents with children aged 7 or over became eligible to claim jobseekers allowance instead of income support."

Further down in the comments section, I post my view, which says that claimant count rise is because a sharp drop in outflows from JSA due to reduced vacancies in the public sector:

"So the rise in the Claimant Count could be due to reducing outflows as the jobless have fewer temporary government/census jobs to lean on. It also means that the private sector isn't taking them on as fast as needed to get outflows up to level needed (around 350k+) to begin pulling the claimant count down to pre-recession levels (the pre-recession average was about 884k on the Claimant Count, compared with 1.49m now)."

 Finally, Paul Bivand from the Centre for Economic and Social Inclusion, seconds my view on outflows:

"If the claimant count change was being driven by people transferred from other benefits, new claims would have risen not fallen...the problem is outflows falling.
...
Employment is at best stable, monthly figures slightly down on previous. The unemployment fall (in month) almost wholly due to young people transferring to inactivity. The quarterly rise in employment and earlier fall in unemployment largely due to the difference between Nov-Jan and Feb-Apr, with a big snow component."

The labour market, just like the rest of the economy has been affected by the weather (good and bad) and the funny holiday season in April.

And just like the rest of the economy, the concern is that the underlying health of the labour market isn't as strong as it could be.

I've just returned from hearing Tim Harford speak on his new book Adapt: Why success always starts with failure. (You can read a recap of his talk at Nesta by reading the #nestaharford twitter stream).

His essential message is that we need to embrace failure if we want to succeed in an increasingly complex world. No single person can come up with the solutions to the problems we face. Rather decentralisation of the global economy makes buying a three quid toaster from Argos possible (you really need to read the book to understand why the toaster is so important, yet so evil).

Back to Harford, who says out with "leaders with grand visions; experts with a detailed plan of action and gurus eith an infallible solution" and in with "improvisation, working from the bottom up, and taking baby steps rather than great leaps forward".

In fact, these last three form the core principles for successful failure:

1. Embrace variety - no one has the answer and experimentation and trail and error can help with the process of selection.
2. Take small steps - don't let any single failure wipe you out.
3. Be able to recognise difference between success and failure - it's not easy, but not everybody can admit when they get it wrong.

For Harford, these three principles can be summed up by the difference between Silicon Valley and Wall Street: one says they love to fail fast; the other believes they're too big to fail. One fosters innovation and growth; the other invested in innovation that damaged growth.

His talk did raise questions about the UK's ability to innovate. He says that you can't innovate without tolerating differences, something which the 'post-code lottery' crowd won't tolerate.

He also says that the first principle - embracing variety and experimentation - doesn't sit well with UK voters (or Stalin, for that matter. Again, read the book), who prefer certainty. It's why Thatcher and Blair were won three elections.

But his talk also raised two other problems for the UK.

Firstly, we have a culture that doesn't like to admit we don't know the answer, and therefore we'll never get to the point were we realise we need to experiment.

Secondly, we have a society that is ashamed of failure and views it as unambiguously a bad thing.

That's where Harford's second principle - learning to love small failures - could make a difference. That and some hubris on the part of politicians and patience on the part of the media.

David Smith's column from the The Sunday Times (£) asks whether economists and policymakers are barking up the wrong tree.

"Some would say there was too much credit pouring in before the crisis, and that is true. But there is plainly too little now.

The Bank used to think M4 growth of 9% a year was consistent with economic growth of 2.5%-3% and hitting the inflation target. That may have changed as a result of a shift in the velocity of money but not that much. 1.5% M4 growth is inconsistent with sustained recovery and chronically weak credit growth will hold back growth.

Responding by boosting government spending or cutting taxes is at best oblique, at worst irrelevant, like trying to fix a leak in the roof by replacing the windows. What the economy needs is s sustained private sector-led recovery, and what that needs is an adequate supply of credit.

David's point is that if we're going to have a 'Plan B', then supply and demand side fiscal measures may be 'barking up the wrong tree' because we've got a credit problem.

And more to the point, he says QE hasn't worked because the MPC has chosen the wrong type of QE - buying government bonds rathr than lending to the private sector.

So, while the International Monetary Fund suggested last week more QE (and temporary tax cuts) might be needed if growth grinds to a halt, that would be a bad idea. It does not solve the problem of dangerously weak credit growth.

The only person who has said much publicly on this is Adam Posen, the monetary policy committee’s Japan expert. Though I do not agree with him in his regular vote for more QE, which would be a futile gesture, he was early on to 'the likely failure of lenders to support recovery'. He, like others, would have preferred it if QE had not been conducted overwhelmingly by the purchase of government bonds. Policy has failed to get credit flowing."

And because a picture is worth a thousand words, David demonstrates this policy failure in the chart below, which shows the meagre growth in M4 money (the broadest measure of the amount of notes, coins and deposits floating around in the economy) since the crisis set in.

It does make you wonder.

It's worth taking a look at this chart of historical oil prices (hat tip: @zerohedge).

A quick scan of the chart suggests two stylised facts about oil prices:

1. Prices typically rise because of war/geo-political tensions.
2. Prices typically fall because of (i) an expansion of supply (in pre-WWII era) and (ii) an end to the war/tension coupled with a shift in demand (in post-WWII era).

Now I know this isn't always the case, but it's what I took away from a quick scan of the chart. That suggests oil prices could remain high as long as the Arab spring/Afghan & Iraq wars persist and BRIC growth drives global demand.

Stephanie Flanders breaks down the IMF statement, noting that some of the risks and caveats to the IMF's support for the Chancellor's deficit reduction plan:

"...the IMF's own research, for last year's autumn World Economic Outlook...suggested that Mr Osborne's plans were likely to have a significant effect on growth in the short-term.

The risk - spelled out in today's report - has always been that this short term cost will turn out to be permanent, because capacity gets lost forever.

To repeat, the IMF does not think that this has happened yet.

Today's report says that the government's policies are broadly right. It explicitly rejects the advice offered by some economists in Sunday's Observer [calling for a Plan B].

But the Fund does clearly believe that the chancellor should have a wider range of back-up plans than he has so far been willing to own up to."