Factory boom to boost the UK economy

 
Julian Harris
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BRITAIN’S factories will continue to drive the economy forwards this year, manufacturers’ association the EEF said today.

The sector exceeded expectations by growing 3.8 per cent in 2010 and will expand by a further 3.5 per cent this year, the group predicted in its 2011 economic forecast.

Exports, particularly to emerging markets, will be key for UK manufacturing and for the recovery as a whole, the report said.

China, India, Brazil and Russia are each responsible for between four and 14 per cent of the UK’s export growth since the final months of 2009. And emerging markets’ economies will expand by almost six per cent this year, said the EEF.

Manufacturing exports were up 11 per cent last year, the report said, and will rise by a further eight per cent this year as the recovery continues.

Official figures on the UK’s trade balance are released this Wednesday.

Overall UK growth will measure a strong 2.1 per cent, the EEF predicts. But it says the government must stop small and medium-sized enterprises being thwarted by regulation and tax.

“The government’s resolve to clear away obstacles to growth must be demonstrated,” said Lee Hopley, EEF chief economist, referring to the government’s delayed growth review, now expected to be released alongside chancellor George Osborne’s next Budget.

Manufacturing activity accelerated at its fastest rate for 16 years last month, while other sectors struggled under the impact of the snow. The factory industry currently contributes around 12.8 per cent to British GDP.

The UK has “a strong international position in many higher value areas such as pharmaceuticals and aerospace,” the British Chambers of Commerce has said.

Spending cuts will deliver greater market confidence in the UK government’s ability to control the deficit, 45 per cent of manufacturers told EEF.

However, almost 20 per cent of manufacturers think the cuts will lead to a drop in orders in 2011, particularly as a result of defence cuts.

The report expects a boom in private services employment to offset falls in government sector employment, despite a rise in unemployment this year.

“In 2012, the unemployment rate is likely to slowly fall as the recovery builds,” the report said. “The economy is expected to be stronger in 2012 compared with 2011.”