UK manufacturing set for mini-revival?

In the latest issue of its economic review, Deloitte economic adviser Roger Bootle (pictured) says that in a coming decade during which consumer spending will underperform and government spending will have to be cut or at least frozen, the star of the show will be what it calls “the external sector”. Bootle writes: “Although concerns have been voiced about whether the UK’s manufacturing sector has shrunk too much, I see no reason why it cannot experience a mini-revival. I think that, over the next decade, manufacturing’s share of the economy could temporarily grow from 11% to 13%. In contrast, the financial sector’s share could shrink from 8% to more like 5%.” The drop in the pound will help the UK to play to its traditional exporting strengths – such as pharmaceuticals and aircraft – he goes on. The trade deficit can be reduced, and aggregate demand boosted, just as easily by lower imports as by higher exports, Bootle believes. “The car industry, in particular, could do well. Transport equipment, including vehicles, accounted for 20% or £54 billion of goods imports in 2007. More of this vehicle production may now be shifted to the UK. Assembly plants tend to be shifted from country to country fairly regularly depending on where costs are lowest. And even for those cars that are still put together abroad, the UK can produce more of the component parts. “The implications of these sectoral changes will be wide-ranging. For example, the renewed emphasis on manufacturing could boost trend productivity in the economy, given that manufacturing lends itself more easily to technical progress than the services sector. This could offset any dent to trend GDP growth caused by lower net migration.”