Investing in UK PLC

Posted on 13 Mar 2012

Felicity Burch, economist at the manufacturers’ organisation EEF blogs on how to improve the level of inward invest to the UK after latest round of UK trade data was released this morning:

UK Trade data released this morning showed that the trade in goods deficit widened in January. Although goods exports were up £0.5bn, imports rose by £0.8bn. Growth in exports to non-EU countries continues, hinting that net trade could still provide a boost to the economy later in the year.

We need more globally-focused companies choosing to expand in the UK.

And an improvement in net trade will be crucial in the year ahead. In its forecast at the time of the Autumn Statement, the Office for Budget Responsibility (OBR) ascribed 0.3 percentage points of the total 0.7% growth expected in 2012 to an improvement in net exports.

The OBR’s projections were also reliant on investment, which they forecast would grow by (a somewhat ambitious) 7.7% in 2012.

Export growth and investment growth are not only key to growth in 2012, they are a necessary part of rebalancing towards an economy that is less reliant on debt-driven consumer and government spending.

To achieve this rebalancing, we need more companies choosing to grow into large corporates, creating jobs and investing in the UK.

More large UK companies would encourage the development of domestic supply chain network and more firms focused on global sales opportunities would maximise the UK’s exposure to increasing demand at a time when our domestic demand and traditional markets are weaker.

In the Budget next week we are calling for the government to adopt a clearer, stronger strategy for growth, based around four central ambitions.

But a clear ambition is only part of the story. We believe that the Plan for Growth should – in a similar way to the Fiscal Plan – be a tool for holding the government to account. As such, there need to be clearly defined measures against which to gauge success.

Export intensity is crucial to taking advantage of growth opportunities, particularly in fast-growing emerging markets. The greater exposure UK firms have to more markets and competition the more productive and more resilient they will be. For this reason, the first target is:

A higher proportion of companies exporting more than 25% of their turnover

Our second target is:

A two percentage point increase in the share of private sector turnover accounted for by mid-sized businesses.

Medium-sized businesses provide significant potential for sustainable volume job creation; are more likely to invest in training and have the scale to work with external supporters of innovation. All of this would be beneficial to the long-term competitiveness of the UK.

If manufacturers are going to locate, invest and grow in the UK, they need to have the confidence that the business environment is improving, relative to competitors, and is on track to continue to do so for the foreseeable future. The growth strategy needs the clarity and purpose of the Fiscal Mandate to cut through to real businesses’ perspectives, and support them in driving the growth that the UK economy needs.