Low exports aren’t grist to the mill

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It’s a bit grim in Britain’s factories just now. Pay is frozen, the gas supply was cut for a day last week and a third of the staff can’t make it to work with the roads in such a state. Still, it hardly matters because the plant is running at three quarters of normal capacity.

Manufacturing is still down in the dumps and EEF, the engineering employers group, reckons it won’t get much better this year, forecasting a mere 1 per cent rise in output over the next 12 months. The whole sector might as well shut down for a winter sun break, were it not for the soaring cost of foreign holidays. But at least the collapse of sterling is helping us to export stuff … It is helping, isn’t it?

Unfortunately, there is not much sign of an emerging export boom. November’s industrial output figures, published yesterday, were very weak, still negative and with no improvement over October. Trade figures were equally disappointing this week, showing only a marginal narrowing in the deficit despite the collapse in the value of sterling.

There have been some more encouraging signs this week. The British Chambers of Commerce did report a rise in overseas orders for manufacturing companies in the fourth quarter. And Weir Group, the Glasgow-based pump and valve maker, raised its profits forecast, in spite of a sharp fall in orders.

But that is hardly what we had hoped for, given that the pound has fallen by a quarter. Surely, British salesmen are hammering on doors from Tuscaloosa, Alabama, to Taipei, with discounts and special offers on UK-made goods? Apparently not.

The export price of British goods in foreign currencies has barely moved over the past two years, according to Barclays Capital. Our exporters mainly prefer to take the extra profit rather than chase more orders by cutting prices in euros or dollars. There are several possible reasons for this: employment and productivity, markets and the profile of British manufacturing.

Manufacturing employment is still high. Most companies took the collapse in orders in 2008 on the chin. Whether due to optimism, paternalism or sheer lack of ability to shed staff, most businesses did not wield the axe. With productivity falling, the extra margin on exports was needed. Meanwhile, Britain doesn’t sell much in the go-go markets of China; our exports are directed to the EU and the US and we tend to sell high-precision, low-volume goods where price competition is less intense.

Whatever the reason, the easy route to recovery does not seem to be open and if Lord Mandelson, the Business Secretary, intends to bang the drum for manufacturing during the coming election, he needs to offer a bit more than his warm feelings for those working in “real engineering”.

www.warren-knight.com thanks Tmiesonline


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