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 41.

    The economy CANNOT rebalance until we cease to be in 'extraordinary' economy (monetary) conditions.

    To suggest otherwise is downright deception!


    FIRST rates up to normal conditions (4%-5% and recover the QE/FFL)

    THEN and only then can we talk of sustainable economic rebalancing.

  • rate this

    Comment number 40.

    #1. Low returns for savers are part of the plan: those not in debt are being encouraged to spend not save. I have done my bit for GDP by spending some of my savings on a new bathroom!
    Lucky you.

    Low interest rates mean some of us don't even have a penny to spend.


  • rate this

    Comment number 39.


    The financial turmoil we have been through has had one effect :

    The Rich got Stinking Rich
    The Poor got Poorer

    ... The rich people who run the planet know that they can't make big changes without some crisis, and so a crisis "materialized", and then they asset stripped the nations ...

    It's a good plan, and 90% of the population will pay for it for 200 years.

  • rate this

    Comment number 38.

    Or we could do what Iceland have jus done and what Germany did after WW2 and create a new currency without borrowing form the bankers and paying interest. Bring back the Bradbury Pound

  • rate this

    Comment number 37.

    #1. Low returns for savers are part of the plan: those not in debt are being encouraged to spend not save. I have done my bit for GDP by spending some of my savings on a new bathroom!

  • rate this

    Comment number 36.

    Ah! The innocence of youth Elysianna, this has all been tried before, the consequence being:
    1) Starvation
    2) Queues
    3) Slavery
    4) Blackouts

    Perhaps extend the voting age to 22?

  • rate this

    Comment number 35.

    Pull your money from the banks and invest in a set of PV solar panels.

    Far better return than the pathetic rates the banks are offering.

  • rate this

    Comment number 34.

    If there is a transition, it's not complete.

  • rate this

    Comment number 33.

    Agriculture - Collective state - stop exporting food

    Retail - Place a "made in Britain" shelf in every shop by law

    Prisons - Forced labour in sweatshops creating the poor quality goods we import from Asia, to be sold domesticity and extra's exported

    Energy - Nationalise all energy companies and construction of massive underground hydro plants on Thames

    21 Years old - Fixed Britain - Thank you!

  • rate this

    Comment number 32.

    #23 rememberdurriti........yes its a start.....Balls has argued against everything the Government has done saying it was all going down hill. It would have been if he and Labour had carried on running the fiasco they got us into.Not heard from him for months now...Ed says he has to keep his head down.To begin with 'there was no recovery possible' its all about 'the fairness of the recovery'.?

  • rate this

    Comment number 31.

    Only about 20 of SMEs export so there is plenty of upward potential.
    Also there is scope to repatriate more high-end manufacturing back to the UK from China to improve quality, responsiveness and the safeguarding of intellectual property.
    I reckon that our Current Account will be in balance in five years.

  • rate this

    Comment number 30.

    Sadly any recovery is based on increasing debt (again), presumably in the hope it wont fall apart before the next election.
    Interesting to see the bond markets are forcing up longer term interest rates for our borrowing, which implies lower bond prices and losses for the BoE (which I guess will be paid from the Treasury since they previously got the 'profits' when the prices went higher).

  • rate this

    Comment number 29.

    Our manufacturing sector is still 11% smaller than it was at the end of 2007.
    This is the key point.
    We can't really celebrate the economy maybe growing at more than 0.4% next quarter when the economy has reduced by 11% over the past 7 years.
    We are talking about decline.
    And the next recession is due.

  • rate this

    Comment number 28.

    I suppose that being a perpetual pessimist Steph, you feel that the facts will rarely disappoint you. As the wine begins to trickle into the glass, it will still be half empty to you.

  • rate this

    Comment number 27.

    The economy needs cheap energy. I'd suggest nuclear and why not use some of that waste plutonium stashed at Seascale for the purpose? Instead of letting the greenies and nimbys confound what is necessary bring in some laws and have the Luddites arrested and given long long prison terms to think again. Automatic for the people.

  • rate this

    Comment number 26.

    22.kcband8 "How can a financial journalist be so positive when recording the slightest improvement in EU affairs, and so negative, with ifs and buts when deigning to record any positive news in the UK economy"

    You'll find the answer in The Centre for Policy Studies report entitled 'Bias at the Beeb'. Proper research, sound statistics, accurate analysis. The BBC's left wing bias is now proven.

  • rate this

    Comment number 25.

    Given that this was the deepest recession in 50 years and we have massive debts AND most of our economic trading partners have also been in recession/depression, 3 years to sort out the economy doesn't seem so bad.
    It's easy to say it should have happened sooner.

  • rate this

    Comment number 24.

    Another way to view the economy is we are just bouncing along the bottom.This is just a temporary peak in a modest bounce.

  • rate this

    Comment number 23.

    Yet this 'economic recovery' isn't being reflected in how ordinary families lives are affected. 8 million workers one pay check away from being homeless, free food bank handouts still soaring, unemployment still at 7.8%, 35% on or below minimum wage, zero hours contracts soaring, savings and pensions being used up to stay afloat, essential services cut etc...
    That's a recovery?

  • rate this

    Comment number 22.

    How can a financial journalist be so positive when recording the slightest "improvement" in EU affairs, and so negative, with ifs and buts when deigning to record any positive news in the UK economy.

    Can only be a background of left wing friends.

    Cheer up for Gods sake!


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