New Year, new risks for UK economy

Posted on 11 Jan 2016 by Jonny Williamson

With Chancellor George Osborne warning that 2016 is a “mission critical year” due to a “dangerous cocktail of new threats”, Jonny Williamson explores what this means for manufacturing.

Chancellor of the Exchequer George Osborne speaks at St David's Hotel, Cardiff Bay during his visit to Cardiff (image courtesy of WalesOnline
Chancellor George Osborne speaking at St David’s Hotel, Cardiff Bay (image courtesy of WalesOnline).

Addressing business leaders in Cardiff, Osborne noted that 2015 was the “worst [year] for global growth since the crash”, adding that those who think that the UK is “immune from the risks abroad” were making a “grave mistake”.

In stark contrast to the considerably more positive outlook of his Autumn Spending Review just six weeks earlier, the Chancellor took a far more sombre tone as he listed the issues rocking global markets; including China’s slowdown, “deep problems in Brazil and Russia”, and plummeting commodity prices, with oil dropping from more than $120 a barrel in 2012, to below $35 at present.

EEF’s chief economist, Lee Hopley, commented that the Chancellor’s warning of “mounting risks in 2016” wont’ come as a surprise to the UK’s manufacturers, the majority of which have been, “Riding the rollercoaster of low oil prices; a strong pound; sluggish demand in Europe, and increasing worries about the prospects in emerging markets for some time.”

What we need, says Hopley, is a coherent approach to industrial strategy, one which sees, “Government and business working together, investing in future growth, minimising new costs on businesses, and quickly moving past the instability and uncertainty of the seismic decision on whether or not to remain in the EU.”

Lee Hopley, chief economist, EEF.
Lee Hopley, chief economist, EEF.

Addressing these concerns, the economist continued, will steady the UK’s industrial ship in order to navigate the sea of risks – and opportunities – it faces in the year ahead, adding that industry wants to see how, “Government strategy for driving balanced growth is going to be delivered.”

According to Osborne, the Government’s economic plan – which backs infrastructure investment and innovation – is working, both now and in the long term. However, director general of the British Chambers of Commerce, John Longworth, would seem to disagree, describing 2015 as a year of “missed opportunities”.

“The Government has to stop wasting opportunities to radically reshape the UK economy. It must take tough, and sometimes unpopular, decisions in the national interest without falling back on the excuse of consultation, delay, and political expediency.”

Longworth cited the non-decision regarding airport capacity, a Spending Review that “placed political priorities ahead of economic necessities”, and a tax freeze on individuals piling pressure on businesses as “just a few examples”.

As he has in the past, the Chancellor extolled the virtues of schemes such as the apprenticeship levy, the higher National Living Wage and the auto-enrolment of pensions.

Crop - Carolyn Fairbairn, Director General, CBI
Carolyn Fairbairn, director general, CBI.

Yet those same initiatives were described by Carolyn Fairbairn, director general of the CBI, as a “cumulative burden of government policy” on businesses, and something firms needed to see relief from.

A viable way of addressing continuing productivity concerns, and delivering greater economic prosperity more wildly, is via the completion of major infrastructure projects such as road and rail developments, according to the BBC’s economics editor, Kamal Ahmed.

A sentiment the Chancellor would appear to agree with, declaring that getting “infrastructure decisions right” over the coming 12 months would be “mission critical”.

Yet a recent report from the National Audit Office rated a third of almost 150 projects due to be delivered over the next five years – including infrastructure, construction, ICT and major service reforms – as being in doubt or unachievable if swift action isn’t taken.

EEF’s flagship National Manufacturing Conference, sponsored by Lombard, takes place in February and marks EEF’s 120th year of backing Britain’s makers. Business Secretary, Sajid Javid, and Tom Watson, Deputy Leader of the Labour Party, will be speaking.

Visit to book or to find out more.

As Shadow Chancellor John McDonnell wrote in The Guardian, “[Osborne’s] austerity programme is leaving our economy more unbalanced, with rising debts, and overexposed to risks elsewhere in the world.”

Rather than further austerity, McDonnell called for, “Real investment in science, skills and infrastructure, made for the long term across the whole country, not excuses and spin”, without which, the Shadow Chancellor cautioned, Osborne offers warnings, but with no real solutions.