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 101.

    Why do the older people continue to insist that low interest rates mean they are being robbed of what is rightfully theirs?

    The only reason you have those savings is because you earned more than you should have at the time and now it's being corrected, whether that be the 40 years of salary you took from the good job, the final salary pension or the overinflated price you sold your 'nest' for.

  • rate this

    Comment number 100.

    "Rebalancing" of the UK economy is an over-statement.
    All that is required is a modest improvement in net exports by growing exports faster than imports over a 5 year period.
    This would result in the current account being in balance.
    It is achievable if more SMEs export.
    This is a key issue which is recognised by the Coalition along with reducing the public sector defecit.

  • rate this

    Comment number 99.

    So, albeit with a slightly bitter aftertaste, the statement is that you agree the economy is moving in the right direction. Lets hope we have a government in the future who can help keep it that way, eh?

  • rate this

    Comment number 98.

    "Wonga profits leap 35%...."

    With £1.2Bn of lending from just one pay-day loan company, I wonder how much of this growth is down to unsustainable lending!

  • rate this

    Comment number 97.

    Where I live (Surrey) the white vans are back they disappeared in 2008 along with all the builders. They are now back building rabbit hutches at unaffordable prices. Pubs, garages, shops all have to go as the value of property goes up. If our economy can be based on building overpriced properties we are back on the rollercoaster.

  • rate this

    Comment number 96.

    #76. Sorry, but apart from Germany, which of the Eurozone countries is doing better than the UK? France is stagnant, Iberia is going nowhere and the rest are a joke. All credit to the Coalition government for pulling the UK around. My only hope is that the recovery is sustained by the time of the next election. The last thing we want after all this hard work, is another Labour Government!

  • rate this

    Comment number 95.


    Perhaps that was New England.

    You can go around any country and find the backside which is filthy, unkempt and poor. Do I talk about Detroit and say that is the USA?

    I agree the UK has serious issues not least a bloated state and busted banks but there are many folks working hard for not much other than a better future. They will have that future as they have earned it.

  • rate this

    Comment number 94.

    Balanced, but still lousy with
    :construction a pale shadow of its former self.
    :3 trillion pounds of loans taken ouot of the economy.
    :a million and a half added to the dole.
    This government wrecked the 2010 recovery and now we boom when it is too late : as the rest of the world cycles back into recession.
    The boat has been missed.
    We drown and George sups gin and sniggers.

  • rate this

    Comment number 93.

    The very welcome growth that is being so trumpeted is not really very much. it will do nothing for the underemployed and it won't get money into pockets.

    until we rebalance the spread of wealth and we are all financially independent we are not going to close the deficit, never mind repay the debt.

    The economy is in serious trouble this growth buys a little time maybe

  • rate this

    Comment number 92.

    A final comment on this thread - among the big, industrialized nations, the UK is like a dwarf perched on the scaffolding of its own failures.

    It has a high vantage point, but its foundations are ramshackle and eroding, with potentially catastrophic consequences. It seeks consolation - as Stephanie reports - in bogus statistics that give a impression that all is well. It is not. Far from it.

  • rate this

    Comment number 91.

    #82, 86

    Since the reversal of the gains made by the Thatcher Revolution, the UK has long reverted to being a highly stratified society, in which wealth is concentrated in relatively few hands, & in which many lead lives of quiet desperation. While the US has hotspots of poverty far worse than anything in the UK, the UK's poverty is far more diffuse & entrenched, India-style.

  • rate this

    Comment number 90.

    89 UR probably not economist, we feel same about USA as USA feels reciprocated..

    sometimes it's better to ignore the world and society and dream all day
    your dreams come true

  • rate this

    Comment number 89.

    It helps if you're behind the wheel driving the economic car to know which gear is forward, which gear is reverse, and what the road looks like ahead.If you want to move forward and you shift into reverse, timing is merely a matter of realizing you've been going in the wrong direction and changing it before the crash.If the UK economy recovers, it won't be because of govt policy but in spite of it

  • rate this

    Comment number 88.

    "Israel missile test amid Syria fears NEW UK to keep pushing on Syria - Hague"
    Economists should explain how wars helps political objectives of its the economy stupid. Carving up NEW Order stench

  • rate this

    Comment number 87.

    Yes but is all this manufacturing our British manufacturing or from elsewhere, e.g. Carbon fibre we helped to develop it and are one of the largest users Formula one do we make it no sell if off the Dutch who sold it to the Chinese.
    But absolutely no development in forty years.

  • rate this

    Comment number 86.

    29 Minutes ago

    "I was in England last month - I saw the litter, the slums, the payday loan shops, & the dismal sight of pensioners huddling in supermarkets for cheap end-of-day deals. It reminds me of the final days of the USS"

    The terms pot and kettle spring to mind, and that's from a Brit who has lived in Texas for 3 years.

  • rate this

    Comment number 85.

    What you need to say is that it has taken us two years to get where we are. This should just be for starters and more power to the collective elbow that is making this possible.

    It is going to take us years to rebalance our economy away from the Big State and Big Finance into making things that other people value and want to buy.

    This shows that with change hope can spring eternal.

  • rate this

    Comment number 84.

    A welcome report.UK's growth measured having infra structure & utilities is more balanced growth status compared with emerging markets. Such market showing growth can easily be distorted lacking in infrastructure social services (If even there) education public services & utilities. UK's economy measurements suffers from over scrutiny & simple BOE remarks about Global situations

  • rate this

    Comment number 83.

    Report misses the core problem of the true reality experienced by growing numbers which is the evidential fact that poverty is actually increasing on the back of economic growth, in UK/EU, & especially in USA.

    The underlying trend is that the west is re-balancing downwards for significant numbers of population, which increasingly adds to unsustainability of taxpayer in work subsidys

  • rate this

    Comment number 82.

    I have never seen such deprivation as I recently saw in the USA.
    Super obese people, crumbing infrastructure, sweet fatty horrible food, few opportunities to walk or ride a bike, poor health, high infant mortality and low life expectancy.
    The USA is basically a third world country for many of its citizens.


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