A rare good news story about UK Plc

 
Allister Heath
FOR a country supposedly poised for a double-dip recession, we are doing surprisingly well. Take the factory figures released yesterday: manufacturing output rose strongly in July and is now up by 4.9 per cent over the past year, the fastest growth since 1994.

The recovery in manufacturing is mainly reflecting higher demand for capital goods rather than consumer goods or intermediate goods, suggesting that the consumer slowdown is going hand in hand with a return of business investment. It also confirms that the UK is successfully moving its much-reduced manufacturing base towards high value added capital goods and away from regular consumer goods, which are cheaper to make in China.

Production of capital goods rose 8.7 per cent year on year during the past three months, while that of consumer durables was flat. Recent growth rates for capital goods output are the highest since data began in 1995, an analysis from Citigroup reveals. Investment spending collapsed during the crisis, as firms slashed outlays to boost liquidity and repay debts. With capex picking up globally, the weaker pound is helping UK?exporters.

That is why I would urge the Bank of England to push through a symbolic, quarter point hike in interest rates: this would send a strong signal that the economy is normalising, that the Bank is serious about fighting inflation and that it realises ultra-loose money cannot go on for ever.

Before I am inundated by emails from people dismissing me as a crazed optimist, let me point out that I’m no such thing. Growth will be weak this year and next; the UK’s ability to expand sustainably has been hugely reduced. We are in for years of mediocre, often hesitant growth; and the coming months won’t be as good as the first couple of quarters. But that doesn’t mean we should ignore whatever positive news we do get.

BP’S WOES (CONT.)

Some companies cannot win. At the start of BP’s crisis, the firm was criticised for failing to admit that the spill was entirely its fault. Then when the media realised that the situation was far more complex, and that Barack Obama was deliberately downplaying the role of US contractors, the media slammed BP for not defending itself more competently. And now that the beleaguered oil firm has finally published its take on what really happened, it is being attacked for trying to shift the blame. The real problem is that while the report actually makes interesting reading (see summary below), it is unlikely to convince US lawyers and legislators still baying for the firm’s blood. Shareholders should brace for more turbulence ahead.

OBAMA’S NON-STIMULUS

Another month, another stimulus plan from Barack Obama, whose Democratic party is trailing disastrously in the opinion polls ahead of November’s mid-term elections. The wheeze won’t work: America has many problems, but insufficient government spending isn’t one of them. Whenever I speak to US executives, I am struck by a much more important issue: they feel they are up against the most anti-business administration since Jimmy Carter’s appalling presidency. They worry that they could be hit at any time with higher taxes, new regulations and – in some cases – even outright nationalisation. No wonder US firms are holding back on investing or creating jobs.

allister.heath@cityam.com