Friday, September 30, 2011

UK has become a nation of zombie companies

When it comes to supporting UK manufacturing, the Coalition government's record has so far proved almost as disappointing as the last one's.

First there was the decision to favour Siemens over the all British alternative for the Thameslink trains contract; now comes the devastating news of 3,000 job cuts in aerospace engineering at BAE Systems, the defence contractor.

The UK economy is meant to be rebalancing away from debt-fuelled consumption to tradeable goods and exports – a formula for recovery which virtually all economists and politicians agree is the only way to go. But most of the news seems to be a grim mix of continued manufacturing decline.

True enough, immediately after the Great Contraction, industrial production appeared to recover quite swiftly. With the pound once more trading at levels low enough to give British factories a competitive edge, there was starry-eyed talk of a British manufacturing renaissance.

It proved premature. In fact, the upturn was no greater than anywhere else, and in recent months it seems to have stalled entirely. In any case, industrial output remains well below pre-crisis levels. Exports have shown some progress, but their growth has been outstripped by imports, so the trade gap remains as wide as ever.

More than three years after the recession began, the hoped for rebalancing has failed to take hold and shows few signs of ever doing so. Why is this, can anything be done about it and why has sterling's near 25pc depreciation failed to have any meaningful impact?