In the wake of the referendum, Leavers have been too quick to celebrate manufacturing’s better-than-expected performanceby Paul Wallace / April 19, 2018 / Leave a comment
Despite Britain’s lacklustre economic performance since the referendum one bright spot in the economy has been manufacturing. But hopes that Brexit might rebalance the economy away from finance and towards industry are as likely to be dashed as George Osborne’s rhetorical ambition in his 2011 budget of “a Britain carried aloft by the march of the makers.” The revival of manufacturing since the referendum owes much to a resurgent European economy, highlighting the risks to industrial firms once Brexit throws sand in the cogs of trade with Britain’s main trading partner.
Worryingly, that revival has already faltered this year. The output of Britain’s factories stagnated in January and fell by 0.2 per cent in February. A widely followed purchasing-manager survey of manufacturing conditions compiled by IHS Markit suggested that output grew in March. That could prove too optimistic given the disruption caused by snow.
Things looked rosier last year as manufacturing for once was in the economic vanguard. Factory production in the final quarter of 2017 was 3.8 per cent higher than in the three months to June 2016, when the referendum was held. That outstripped Britain’s dominant business and financial services sector which grew by only 2.6 per cent over the same year and a half. Since business and financial services are three times as big as manufacturing (which makes up only 10 per cent of GDP), the outperformance of the makers made little difference to overall economic growth. GDP increased by 2.7 per cent over that period, equivalent to a disappointing annual rate of 1.8 per cent.
One reason why manufacturing did relatively well was the steep fall in the pound after the referendum. Since Britain’s factories export a lot—a third of their total turnover in 2017 was exported—they gained particularly from the depreciation in sterling which made foreign sales more profitable. Exports of goods excluding oil and erratic items (such as privately held gold) grew in volume by 8.1 per cent between the three months to June 2016 and the final quarter of 2017. That contrasted with a smaller rise in similar imports, of 5.4 per cent.
But British exporters respond nowadays more to demand in foreign markets than to changes in their competitiveness. The decisive influence in improving manufacturing’s fortunes last year was the revival of the economy around the world and in particular in the European…