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.