Intelligence Briefing - 17 February 2012

Published: 17/02/2012

NEWS

Minister pressed on need for Resource Strategy

We extended our call for government to develop a Resource Strategy at a stakeholder meeting this week with Lord Taylor, Parliamentary Under Secretary of State at Defra. We believe that government has not fully identified how resources are being managed and how materials could flow more easily within the economy, whilst still protecting the environment. Its 2011 Waste Review failed to access and address this issue.

Following the publication of the UK’s Climate Change Risk Assessment, we also called on Lord Taylor to ensure that any advice from government to manufacturers on the business continuity risks that may arise as a result of changes in our weather patterns is embedded across government and not just isolated within the Environment Department.

For further information contact Susanne Baker, Senior Climate & Environment Policy Adviser

Building up to the Budget

As we draw closer to the Budget (29 March) EEF continues to engage with officials at HM Treasury and the Department for Business. Meetings this week focused mainly on measures to improve lending conditions for SMEs (see also below on the Merlin Agreement). In March the government will provide further details on the operation of the National Loan Guarantee Scheme, which will reduce the cost of borrowing. There will also be recommendations on another part of the government’s credit easing package – a review of non-bank finance for SMEs. As reported in last week’s briefing, EEF has submitted evidence and will maintain discussions with officials and Ministers on taking the review forward. We will bring you further details of our priorities and activities for the Budget, in Intelligence Briefing over the coming weeks.

For further information contact Lee Hopley, Chief Economist

Judging the Merlin Agreement

On Monday the Bank of England released the final quarter of 2011 results for the Project Merlin lending targets agreed between the major UK banks and the government. The idea of the targets was to get UK banks lending more to UK businesses, particularly smaller businesses. The banks exceeded their overall target (£215 billion v £190 billion), but they narrowly missed their target for lending to SMEs (£74.9 billion v £75 billion target).

The reality for businesses on the ground is that the lending environment does not feel materially easier than it did a year ago. We still regularly hear that SMEs continue to be frustrated by the cost and terms and conditions around lending, with the result that some are opting out of using external finance altogether.

The challenge for 2012 is how to offset the forces dampening demand for finance by improving the conditions of supply. The government’s Credit Easing initiatives, focusing on bringing down the cost of bank lending and improving the supply of finance outside of banks will be challenging to implement but seem to offer a prospect of making some improvement on access to finance.

For further information contact Andrew Johnson, Senior Economist

EEF meets officials to discuss industrial opportunities in wind sector

EEF met with the director of the Department of Business, Innovation and Skill's 'Green Economy' team to discuss how best to maximise opportunities for manufacturers in the government's drive towards wind energy. We highlighted that UK industry has the capability to deliver a significant share of the content in the emerging market for offshore wind turbines. The government drew attention to the Technology Strategy Board's upcoming 'Advanced Manufacturing Supply Chain Initiative', a £125m fund to support the development of supply chains in high-growth potential markets. Click here for more information on scheme.

For more information contact Roger Salomone, Energy and Regulation Adviser

Have you booked your place at the EEF National Manufacturing Conference yet?

EEF is holding its first ever national Manufacturing Conference this year in London on 6 March 2012. Confirmed speakers include the Business Secretary, Vince Cable MP, the Leader of the Opposition, Ed Miliband MP and Dick Olver, Chairman of BAE Systems. With a choice of best practice workshops delivered by successful manufacturing firms, covering topics such as managing global supply chains, exporting and accessing finance, there will be plenty of opportunity to learn from and network with fellow manufacturers. Places are still available and to find out more and register visit http://www.manufacturingconference.co.uk/.

For more information contact Steve Coventry, Head of Government Affairs

WEEKLY FOCUS

Durban climate talks: what now?

In many ways Durban exceeded expectations. In the dying hours of the conference a surprising amount of decisions were made. There were some important developments. Some have been well covered in the media – the continuation of the Kyoto Protocol, the agreement to work towards a new global deal on climate change and the establishment of a new fund to finance low-carbon action in developing countries. Some decisions have received less coverage in the media. This includes important decisions on technology and sector approaches.

So what now? If the UK economy is to grow a healthy and green manufacturing base, what are the actions we would need to see happen at this juncture? In a new report, to be published on Monday, we explore three key issues that are important to the UK manufacturing: technology, the role of sector approaches and whether Europe is now in a position to be more ambitious in cutting greenhouse gases. In summary:

Technology: We believe the UK can still be a leader in low-carbon technology. To that end, we think government should bid to host the UN’s Climate Technology Centre and explore how it might work with others internationally to strengthen the incentive for innovation. We also need more support from government at home. British manufacturers can play a strong role in providing the world with the technologies they need to meet low-carbon goals. But first these innovative solutions need to get to market. We also would like to see a UK strategy addressing how we are to develop the technologies required to meet our 2050 emissions reduction target, focusing on addressing the general barriers manufacturers face when trying to get low-carbon technologies to market – from access to finance to penetrating well-established supply chains – and how government can further incentivise innovation.

Sector approaches: In the absence of a unified price of carbon, we believe sector approaches represent the most equitable, realistic and environmentally-efficient approach to tackling emissions from energy-intensive, internationally competitive industries. The approach allows the specific barriers and opportunities of a sector to be fully analysed and enhances the incentive to address these, while addressing the crucial issue of carbon leakage. But industry can not do it alone. Attempts by industry to develop global sector schemes have fallen short because of poor participation from those in countries which have no restrictions on emissions. If this is going to have a chance to work, we need government to start building support with the major producing countries to achieve this common goal.

More ambition in Europe: We conclude that with just 16 per cent of the world’s emission captured in the extension of the Kyoto Protocol, there is nothing new on the table that would justify a reduction in the EU’s 2020 target to reduce emissions by -20%. Instead, let’s ensure we remain focused on meeting existing targets, cost-effectively.

For further information, please contact Susanne Baker, Senior Climate and Environment Policy Adviser

IN THE NEWS

As outlined above, Monday saw the release of the latest Project Merlin data where our response was covered by BBC online, the FT and Daily Mail. Our views were sought regarding positive news in the automotive sector and reported in the Daily Mail, whilst our view was again sought on positive recruitment of engineers by Dyson. Broadcast interviews were given to Radio 5 by Chief Economist Lee Hopley and Radio 4 You and Yours by Senior Climate & Environment Adviser Susanne Baker.

WEEK IN REVIEW

	Consumer prices	CPI inflation fell to 3.6% in January, from 4.2% in December. This is partly resulting from the fact that last January’s VAT rise – which pushed up inflation in 2011 – has now been fully accounted for in the statistics.
	Labour market statistics	The number of people in employment increased by 60,000 in the three months to December, mainly due to an increase in the number of part-time employees. The ILO measure of unemployment rose by 48,000, though this was the smallest quarterly increase since June 2011. The ILO unemployment rate was stable at 8.4%. The Claimant Count measure of unemployment – which records the number of people claiming Job Seekers’ Allowance – rose for the eleventh consecutive month, though the claimant count rate was unchanged at 5.0%.
	EEF Pay Settlements	The three-month average pay settlement was 2.4% in January, down slightly from the month earlier. This is in line with the broadly stable settlements seen throughout 2011, and – given that January is one of the key months for settlements – it may suggest that last year’s elevated inflation has not had an undue influence on pay deals. Official statistics showed that across the whole economy, pay rose by 2.0% in the three months to December and by 1.4% for manufacturing. Excluding bonuses, pay was up 2.0% across the economy and by 1.8% in manufacturing.
	Retail sales	The value of retail sales in increased by 4.4% between January 2011 and January 2012. Sales volumes increased by 2.0% over the same period.

THE WEEK AHEAD

Tue 21st: Public sector finances
Wed 22nd: MPC minutes
Fri 24th: GDP (2nd estimate for 2011q4); Business Investment

We recommend that you take our advice before using any of the information or documents on this website. You should always seek specific legal advice before taking or refraining from any action. Information and documents on this website are prepared in accordance with the laws of England, Wales and Scotland. Users accessing from Northern Ireland should be aware that different laws and interpretations may be applicable to Northern Ireland.