UK manufacturers will have read with some concerns the suggestion from the Prime Minister that your forthcoming Budget might reallocate savings from lower than expected social security payments and debt interest to additional public spending. 

This would surely see a return to form by HM Treasury in assuming the best possible outcome for the labour market and the public finances and spending accordingly.  Indeed, many companies may also wish to highlight that the lower levels of unemployment seen during this recession, compared with others, was in large part a consequence of companies and employees working together to minimise job cuts and retain skills. 

If this Budget does extend the Treasury's generosity to increase spending companies will rightly feel perplexed that their efforts to keep jobs have been rewarded with higher taxes to fund new spending commitments rather than to reduce the deficit.

Reducing the deficit, after all, must be the focal point of your statement. 

Manufacturers will be hoping for your statement to put an end to the current debate on the timing and pace of fiscal consolidation. 

This is missing the point. 

Some companies will start to feel the effects of fiscal tightening in the next financial year.  And the stimulus measures - which did help to limit the economic damage of the recession - have all but run out. 

You have an opportunity to outline HOW companies will be impacted by decisions on tax rises and spending cuts in the coming years and how these will relate to the government's priorities for the economy. 

Not to do so would be a huge missed opportunity.  The Budget needs to spell this out.  Otherwise the sectors of the economy that hold the best hope for recovery will face further uncertainty and decisions about investing in the UK will remain on hold.

You can read our full submission to the Treasury in advance of the Budget on 24th March here. 

And the conclusion from nearly 100 delegates in the North West today was ‘Yes, manufacturing should be at the heart of a future balanced economy.’

One of a number of events going around the country for Manufacturing Week, EEF and the North West Development Agency hosted a debate at Jaguar Land Rover’s impressive facilities at Halewood. 

The panel brought together a range of views from manufacturing, business support, finance and EEF to discuss issues from how we take advantage of low carbon opportunities and concerns about the public finances to how we improve the image of manufacturing and get businesses and universities working more closely.

The audience was firmly on the side of manufacturing – it is important to our economy and it can be bigger and more important in future. 

And while 90% of delegates agreed that government needed to get stuck in if this was going to happen, the majority also recognised that manufacturers can and should shout louder about their contribution to the economy and their communities.

Panellists and audience members agreed that raising the profile of industry during Manufacturing Week was a critical part of this, but that it was everyone’s responsibility to carry this forward beyond the 5th March.

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.

Earlier this week we provided a reality check on the recovery and raised the very real possibilty of a doubled-dip recession.  Well it turns out that we and most of the rest of the economics profession were some way off the mark in thinking that the UK economy had returned to growth in the third quarter.

Today's GDP release from National Statistics showed that the economy continued to contract by 0.4% in the three months to September against our expectation of 0.1% growth (consensus 0.2%).  There's relatively little detail in the first cut of data - but it does suggest that no sector of the economy reported growth for the fourth quarter running. 

The bigger question is what happens next?  As we pointed out this week stimulus measures will start to run out at the end of the year.  It looks like the economy could still be pretty fragile and there are no signs, as yet, that the economy will have much momentum on its own.  The prospect of conditions really turning around in the early part of next year is starting to look a bit more remote.  This makes it more likely that more QE and stimulus could well be on the way.

It'll be a while yet before the headlines call the end of the recession.  Mervyn King, earlier this week paraphrased Churchill describing the financial crisis

"Never in the field of financial endeavour has so much money been owed by so few to so many."

He might want to add another Churchill quote 

"Now this is not the end.  It's not even the beginning of the end." 

We’ve been saying quite a lot about the risk of policy errors at this point in the economic cycle recently.  There is still a wide range of views on whether the UK is or isn’t yet out of recession. But there does appear to be more agreement on a long and bumpy road to recovery and the need to ensure that stimulus measures remain in place until the economy can stand on its own two feet. 

So first up is the car scrappage scheme – announced in the Budget and came into effect in Mid-May.  At the current rate the cash should run out in the next month or so.  Over the summer new car registrations have picked up and manufacturing output in motor vehicles and other sectors supplying to car manufacturers has also turned a corner.  But can this trend continue in the rest of the year and into next without incentives provided jointly by government and industry. 

EEF and other manufacturing bodies reckon not.  So we’ve written to the Chancellor calling for the scheme to be extended until February next year.  Our argument – as outlined in the letter goes like this;

‘Although the current climate has stabilised, output levels are still below pre-recession levels. Wary about the prospect of a sustained recovery and ongoing concerns about access to credit and cashflow means investment intentions remain low.  Consequently any relapse in auto industry output, coupled with the expected deterioration of the UK aerospace and defence industry in 2010, could pull manufacturing and the economy back into recession in the New Year’  

Rumours suggest that we might have won this argument.

A couple of surveys from EEF this year have show that the reduction and withdrawal of credit insurance has been a major problem for a majority of manufacturers.  We lobbied hard in advance of the Budget in April and HM Treasury listened and put in place a government backed top up scheme for companies that had had cover reduced. 

Take up of the initial scheme was low, so again government listened, and the eligibility criteria for the scheme were backdated from April 2009 to October 2008.  Further changes to the scheme have been announced today.  

• The price of the top-up cover will be cut from 2% to 1%.
• The £20,000 lower limit on cover will be removed.
• The upper limit on top-up cover will be doubled to £2 million. 

No corresponding increase in the money available for the scheme has been announced - but as we said last time the £5bn announcement was more headline grabber than assessment of need.  Any further expansion of the scheme that helps manufacturers is obviously a good thing, given some of the risks associated with a reduction in cover.  It should provide some breathing space for companies starting to see a trickle of orders come through.  But those that have seen a complete withdrawal of credit insurance will still be stuck.

The government has tried to get this off the ground and increase uptake, now we need to see similar moves for companies facing problems with credit insurance on exports. 

This is how Mr Liikanen, Finish Central Bank governor, recently described the more positive economic picture emerging in Europe - presumably preferring a traffic light analogy to the usual 'green shoots'. There was some more good news from the eurozone today - GDP across the 16 economies contracted by a less than expected 0.1% in the three months to June. And after a year in recession, both Germany and France expanded by 0.3% over the same period - beating expectations by some margin.

Several commentators were quick to declare the recession over in the eurozone's two largest economie, with some going so far as to predict a strong rebound in growth in the third quarter. This could potentially be good news for UK manufacturers - a recovery in demand in the UK's biggest market could be just the boost manufacturing needs.

However, others are taking a more cautious view of the numbers. Both France and Germany have put in place significant stimulus packages this year, supporting both industry and domestic consumption - the generous cash for bangers scheme and support for short-time working being good examples. Some economists need a bit more convincing that the eurozone is ready for these measures to be withdrawn. With the ECB also formulating its exit strategy, the rug could yet be pulled from under some of the factors that supported growth in the past few months.

Economic data for this week and some arrows pointing up for a change:

...the end of the recession that is.

the beginning of the month generally brings a run of new data releases and most this month have been a bit punchier than expected.  Earlier in the week we blogged on the first signs of expansion in manufacturing activity since last April.  And today's industrial production figures suggest the PMI data may not have been an aberration.  According to National Statistics manufacturing output increased in June and the three month on three month contraction eased to just 0.2% from 1.2% in May. 

Elsewhere, activity has also picked up in the service sector.  Today's PMI index bounced back to an above consensus 53.2.  Taken together some analysts are calling an end to the recession.

Perhaps.  But the risks - and there are many of them, remain on the downside.  The manufacturing numbers have been buoyed by rapid destocking and the fact that Sterling has been on the side of UK exporters in recent months.  A pick up in new orders has got to be encouraging - but evidence of a real recovery in global demand is still lacking. 

Another downside from both surveys released this week was the employment components.  In both manufacturing and services there is little sign that the pace of job cuts is easing.  Which raises questions about if and when a pick up in domestic demand will gain any traction. 

Quite a bit for the MPC to mull over.