Whither the March of the Makers?

Kaveh Pourvand, 12 March 2013

George Osborne’s 2011 budget speech contained some very grand sound bites on the importance of reinvigorating British manufacturing. He announced that he wished to see ‘a Britain carried aloft by the march of the makers’, made clear that his budget supported ‘exports, manufacturing and investment’, and stressed that manufacturing ‘is crucial to the rebalancing of our economy’.

That was then.

ONS statistics released today show that, so far, the Chancellor has failed to turn these aspirations into a reality. In fact, the trend is running the other way. The Index of Production shows that manufacturing output in January 2013 was 3% lower than January 2012. Nor has there been a boom in exports. UK Trade statistics for January 2013 indicate a goods trade deficit of £8.2 billion. This was an improvement on the prior month’s figure which was £8.7 billion. But this improvement was driven by trade in oil, which reveals little of a country’s manufacturing prowess. A better measure is the goods trade figure excluding oil. On this measure, the goods trade deficit deteriorated from £6.8 billion to £7.8 billion between December 2012 and January 2013.

Of course, the statistics today are only looking at one month’s figure. But nor does the yearly data point to any manufacturing revival. Excluding oil, the goods trade deficit was £92.2 billion in 2012 compared with £88.7 billion in the prior year. Manufacturing output also fell by two per cent over this period.

In other words, if the makers are marching in any direction, it is backwards.

One may argue that it is unsurprising that manufacturing data is so weak in a weak economy: once the economy picks up, so will manufacturing. There is obviously a lot of truth in that. But British manufacturing is held back by structural problems as well as the general lack of demand. Why, Martin Weale of Bank of England asks, has manufacturing output not performed better given the 20 per cent devaluation of sterling since late 2007?

If the Chancellor is serious about rebalancing the economy, maybe he should pay attention to this report.