UK rebalancing - all in the timing

Welders UK manufacturing is "booming again", according to the latest PMI survey

It's much better late than never, but earlier would have been better. That's how most economists would respond to mounting evidence that the UK recovery is starting to be more balanced.

It's great news that manufacturing and exports seem to be playing a bigger part in the UK's economic growth. It's also good to see British firms expanding their business with the Bric countries.

The shame is that all this is happening, just as those big emerging markets are slowing down - and just as they are looking to export more as well.

Today's PMI survey for UK manufacturing was the highest in more than two years and well above expectations. The output measure is now growing faster than at any time since the mid-1990s.

It adds to a feeling that the second-quarter GDP figures were not a blip, and the manufacturing side of the economy is starting to pull its weight, not just in the home market but abroad as well.

You'll remember the GDP numbers showed manufacturing output growing by 0.4% in the three months to the end of June, and city economists reckon it could do even better in the quarter we're in now.

The more detailed breakdown for the second quarter also showed net trade was responsible for half of our growth overall, with exports rising more than imports.

All of these things are good. So was the news - last month - that our trade deficit with non-European countries had almost halved in June.

Economists at Citi reckon the UK's exports have risen by 182%, in cash terms, in the last 10 years - five times faster than the UK's exports to advanced economies.

Within that, exports to China have risen six-fold since 2002, and exports to India are nearly five times higher. Goods exports to emerging markets now account for nearly a third of our goods exports, up from 17% in 2002.

But, as the prime minister has pointed out, this progress is from a low base. Emerging markets still account for a much smaller share of exports in the UK than the European average. Let alone Germany.

That weak position has been particularly troublesome recently, when emerging markets have accounted for so much of the growth in global imports (see chart from HSBC below).


For my piece on emerging markets for the TV bulletins last week I calculated that the G7 economies had grown by less than 2% since 2008. In those five years, the developing world has grown by 31% - and China has grown by well over 50%.

With the emerging market economies slowing down, you might think our relatively weak position in these markets was turning into a short-term advantage - that the UK would now be relatively less affected by any oncoming storms in the developing world.

But that may be wishful thinking. After all, we have lots of investment links with the likes of India and China. As Citi point out, we also export a lot to countries like Germany that are themselves vulnerable to falling Chinese demand. And when you are looking for exports to drive so much of your growth, every little hurts.

So yes (in case you missed me saying it the first five times), it is good news that the UK's manufacturing sector is making and selling more at home and abroad.

But that, too, is progress from a low base. Our manufacturing sector is still 11% smaller than it was at the end of 2007.

And with emerging market economies now faltering, our hopes of rebalancing further may be even more dependent on the eurozone's recovery than they were before.

Stephanie Flanders Article written by Stephanie Flanders Stephanie Flanders Former economics editor

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  • rate this

    Comment number 21.

    "Someone who could give credit to coalition policies when they get results?"

    After 3 years we still have 7.8% unemployment - hardly a result.

  • rate this

    Comment number 20.

    Many of us crave an objective, non-party-political, insightful BBC blog which interprets the UK's current economic status and its likely future direction of travel. So might it be possible for Steph to alternate blogging with a 'guest' blogger? Someone who could give credit to coalition policies when they get results? Credit to UK industry when it makes progress? It would make a nice change.

  • rate this

    Comment number 19.

    Well we're all working for less money in the manufacturing industry, oh and we're doing 3 times more work, 6 years of study and im on the same wage as back in 2006 and its only going to get worse

  • rate this

    Comment number 18.

    5.Charles Jurcich
    It will be interesting to see how much of the recent growth is down to net tourism responding to the weaker pound
    Or no Olympics this summer? You make a good point. London in particular seems to have been heaving with tourists for months. All grist, t'mill, lad.


  • rate this

    Comment number 17.

    Better economy = More immigrants.

  • rate this

    Comment number 16.

    Good old Steph. If it started raining £10 pound notes it would be bad news unless the BBC thought Labour had done it. They are desperate for the economy to fail which is disgraceful given that Miss Flanders owes her enormous salary to the self same economy and the licence payers that power it up.

  • rate this

    Comment number 15.

    SF: 'That's how most economists would respond to mounting evidence that the UK recovery is starting to be more balanced.'
    Steffie, be realistic. You are clutching at straws. A month or two's figures creeping in the direction, favourably, for manufacturing is not a significant re-balancing of the UK economy, tho better than bad news

  • rate this

    Comment number 14.

    12 watford
    "It implies that the UK had within its control the ability to recover much faster than it has done."

    It did, the Eurozone problems had been predicted as far back as 1999, and the govt can always offset lower private sector activity with more spending or tax breaks.

  • rate this

    Comment number 13.

    still not happy eh steph heigh-ho

  • rate this

    Comment number 12.

    "It's much better late than never, but earlier would have been better. "

    This is a perplexing and unfair statement. It implies that the UK had within its control the ability to recover much faster than it has done. But that's a false inference to make, as every other economist acknowledges that the UK recovery has been held back by the dire Eurozone fiasco (which is beyond the UK's control).

  • rate this

    Comment number 11.

    Only weeks ago Stephanie 'triple-dip-recession' Flanders blog was a daily refrain, simply echoing Ed 'flat-lining' Balls yearning for an economic meltdown to wash away memories of Labour's catastrophic incompetence. Suddenly signs of recovery are everywhere. Those of us with an interest in economics deserve an BBC editor who can recognise a leading economic indicator when she sees one.

  • rate this

    Comment number 10.

    Trust Steph to be able to put a negative slant on good news.

  • rate this

    Comment number 9.

    The economy is being rebalanced in favour of fatcats and tax avoiding corporations.

    The government couldn't give a damn about hardworking middle class taxpayers : the true wealth creators.

  • rate this

    Comment number 8.

    Writing this Steph must have been like "drawing teeth" for you ...but better late than never eh?..the recovery I mean! Its a shame for the prejudiced lefty bloggers on here also..they would even prefer to have the economy continue in the red until 2015 for fear Labour might lose the election if it continues to grow. Too many of the 'closed mind' pathetic!
    Where's Ed Balls lately?

  • rate this

    Comment number 7.

    I take my money out of the bank at soonest convenience. Corrupt and bought people do not deserve to make money on my hard work. It's time these bankers who caused the collapse were brought to justice. They crippled many economies, and got fat pay checks for doing it. All countries are suffering, but the Bilderbergs of this world made a mint. They are not a protected species, search the reason 4 it

  • rate this

    Comment number 6.

    Always a BUT with Steph still she does work for the BBC!!!

  • rate this

    Comment number 5.

    It will be interesting to see how much of the recent growth is down to net tourism responding to the weaker pound.

  • rate this

    Comment number 4.

    Business is Booming in UK
    The way things are going interest rates will have raise earlier then expected.
    This will make The housing bubble bust as people can not afford payments on houses with mortgages of half million or more.
    This will leave lot in negative Equity as prices crumble down.
    The banks will make lots money and benefit most so will government from the bursting bubble. Are you ready?

  • rate this

    Comment number 3.

    saving/investing its much the same thing ie putting money aside with the aim for growth, why would you save cash in the bank with the current interest rate as it is, have you not heard of the stock market or investment funds?

  • rate this

    Comment number 2.

    How are Labour ever going to win the argument if the damn economy keeps on improving!


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