Overseas demand gives faint hope for growth

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Economy Watch normally keeps its eye on our sceptred isle, but occasionally it helps to remember that Britain is not really much of an isle these days.

Shocks from a fierce earthquake and resulting tsunami in Japan on Friday knocked the stock market back, the FTSE100 retreating still further from recent highs above 6,000; shares of insurers were among the losers. Pitched battles between civilians and governments in north Africa pushed up oil prices. News of China’s trade deficit caused many to question how long it can act as the world’s engine of demand, if nervous policymakers decide to curb lending.

That question is relevant to official data published at home last week. Britain’s trade gap narrowed in January as exports outstripped imports. Exports to China are up nearly 30 per cent on the year; imports less so.

Business, too, is better off when it can rely on overseas demand. Manganese Bronze, maker of the signature London black taxis, won its biggest single order by its joint venture in China, selling 1,000 units to Azerbaijan. But a sister company making electric delivery vans for the home market folded. Marks and Spencer increased its outlets in China while Weir Group benefited from booming mining markets worldwide.

Official statistics showed strong growth for exporters. But other data show the weak pound that helps them secure business is driving up costs of raw materials.

But high street retailers, which rely on demand at home, are having a bad time. John Lewis – to date the most durable of retailers during – reported another week of tepid sales. Morrison, the supermarket, also warned something had happened to the consumer mindset since January. Lookers, the car dealer, said thrifty consumers at its spare parts and maintenance business meant profits were up even if fewer people bought new cars.

The numbers of new home loans fell to their lowest levels since prices were in a trough two years ago. A leading research institute said the economy barely grew in the three months to February. No wonder the Bank of England voted not to raise interest rates.

Is demand worldwide enough to sustain growth at home? If not, prepare for much more belt tightening.

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