April 10, 2013 6:56 pm
Two years ago George Osborne, chancellor of the exchequer, extolled the virtues of “made in Britain” and set out a vision of the economy being buoyed by a “march of the makers”. A UK skewed towards finance and consumption would be renewed by a revival of the manufacturing sector and exports.
Yet despite enjoying the benefit of a sustained and steep fall in the value of sterling – the pound is still down about a fifth from where it was before the financial crisis – Britain’s exporters have failed to set much of a pace. The trade figures for February were dire. Far from foreign sales expanding as companies directed their sales efforts away from an austerity-hit UK, exports were stubbornly flat.
The failure of exporters to respond to the currency stimulus has many possible causes. Manufacturers may have been deterred from going on a foreign sales drive for fear that devaluation would prove temporary (and sterling did briefly rally in 2012 before slipping back). A large proportion of British exports go to the eurozone, where austerity has sharply cut demand.
But none of this explains the whole story. Not all sectors have failed to boost exports. The car industry has been a bright spot, but this may have something to do with its domination by multinationals that can respond to currency changes by switching production overseas. Eurozone weakness cannot alone explain manufacturers’ failure to make headway in emerging markets, many of which have been booming. The bleak fact may be that the UK does not have enough exporters making and selling the right goods.
To date, Britain has been strongest at exporting financial services. But the country cannot rely on demand for these continuing to grow strongly in future. Something is needed to take their place.
Nurturing new export sectors that can take up the slack will take time. A more activist approach towards industrial policy might help – if directed towards industries where the UK has a competitive advantage. The government could do more to assist high-tech sectors in overcoming skills shortages, notably through better training and a less obstructive immigration policy. But much of the impetus must come from companies themselves, investing in their business and sharpening their selling skills.
Mr Osborne’s vision was always appealing. But it was also optimistic. There is no shortcut to rebalancing. And for the makers, this is a slow march not a quickstep.
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