Should policy makers continue to advocate “rebalancing” the economy by exporting?

sarah oconnor ft economicsSarah O’Connor, economics correspondent of the FT, reports Lloyds Bank’s findings that 58% of the 200 midsized companies surveyed (annual revenues between £25m and £750m) said the UK was their top priority and were not reliant on exporting. Just 7% planned to enter overseas markets in the next five years.

Obstacles named by companies include volatile exchange rates and a range of different legal and regulatory regimes.

Policy makers advocate “rebalancing” the economy towards exports and away from a reliance on domestic demand. Tim Hinton, Lloyds’ managing director for small and medium business banking, said midsized companies were “overlooking the benefits” of exporting. Businesses are focusing their efforts on their UK operations first, looking to reduce their costs and increase productivity before embarking on global growth opportunities” and UK manufacturing grew 0.9% in the third quarter, ahead of services at 0.7%.

The government and the Bank of England want to see the UK economy reduce its trade deficit – perhaps they should encourage import substitution which would also boost domestic manufacturing.

Another FT article agrees that the economy remains lopsided and too reliant on domestic consumption, disappointing policy makers who had hoped for an export-led recovery: “The trade in goods deficit rose from £9.1bn in May to £9.4bn in June as exports fell more steeply than imports. The overall trade deficit – which takes into account the UK’s services surplus – rose from £2.4bn to £2.5bn”.

imf header

The IMF’s opinion: sterling is somewhat overvalued and its recommendation for manufacturing is to increase immigrant labour . . . no thought of educating and training our own unemployed.


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