Lloyds Bank: UK manufacturing suffers ‘chronic underinvestment’

Posted on 17 Apr 2012

Trevor Williams, chief economist at Lloyds Bank plc, told delegates at MACH 2012 that an unprecedented number of UK companies are sitting on piles of cash rather than investing in R&D, equipment and site space.

Opining that the difference in the extent of the cuts that a Labour administration would have made compared with those being made by the coalition government would be no different, Mr Williams told delegates that the recession would last longer than predicted by other commentators, including the government.

Commenting on manufacturing, he said: “Compared to the rest of the economy, manufacturing is doing better than the overall economy. [Lloyds] is predicting around 1% growth in the industry this year, and next year we’re looking at manufacturing growth of 2.5%.”

Mr Williams explained that weaker sterling has allowed British exports to become more competitive and in turn GDP has grown. He predicted that while inflation is still relatively high and real wages have fallen during the recession, inflation will gradually fall.

“Unit wage cost has decreased by 10% over the past three years – this is definitely good news for the UK economy,” he said. Unit wage cost is the labour cost of a consistent unit of production, and is an indicator of the level of worker productivity and the prevailing labour costs for companies.

Asked about the state of the Italian economy, Williams said that although Italy faced challenges, “[Italy] will probably be able to meet its debt obligations – the same cannot be said for Spain. Italy is a rich country and Italians save their money; they don’t have to rely on overseas aid to repay their debt.”

Answering another delegate’s question over the financial implications for the UK of a potential withdrawal from the European Union, Williams confirmed that any such withdrawal would probably be a ‘bad move’ for the UK, and pointed out that 40% of all foreign investment to the EU goes to the UK.

“It’s not in the interest of the UK to pull out of the EU. We could leave – maybe in the long term it would be a good move but the reason why so many foreign companies choose to invest in the UK is because we are part of a single trading zone,” he said in his presentation at MACH on Tuesday.