Who is Really Pushing the Recovery Forward

Manufacturing is leading the way in recovery so far.

Manufacturing is leading the way in recovery so far.

The Confederation of British Industry (CBI) is estimating the UK economy will see growth in the neighborhood of 2 per cent next year, a half per cent less than previously forecasted. The rise in the VAT along with low wage settlements is to blame for the lower updated figure. Still, the CBI expects to see some significant growth in all areas of the UK economy. Economists say the data regarding the economy demonstrates the recession ended in October of 2009, regardless of what it “feels” like.

So, which sectors are leading the UK back to normal economic days? Andrew Goodwin, senior advisor of Ernst and Young, says: “Manufacturing has led the recovery so far. The sectors that fall the furthest tend to come back fastest as well.” But, if you look at the big picture and see what construction had done from April to June this year compared to the same time last year, the leader is not manufacturing, but construction.

The biggest reason manufacturing has fallen the most, then made the biggest gain through this tough time is, the way businesses deal with all the stock they have on their floor. During a recession, retailers hold on to inventory in storage as long as they can so they can replace the floor items which get sold, with fresh items. When items do not sell off the floor, many manufacturers will work with the retailers for stock which has built up in storage.

Lee Hopley, chief economist at EEF, remarked on real demand, saying: “The process of restocking has finished and what we are seeing now is real demand.” She added: “There has been particularly strong growth from manufacturers exporting to emerging markets in Asia.”

The UK has made a remarkable recovery and the question now is, not only will the economy grow with no more stimulus pounds added, but how will it perform with the austerity measures put in place, in an attempt to reduce debt.

Comments & Debate

  1. September 23, 2010 at 10:21 am FRP Advisory Commented:

    FRP Advisory LLP, the specialist restructuring, recovery and insolvency firm, recently conducted a survey of senior financial and legal professionals, and found that 83% thought private sector growth during the next two years will not be enough to support the influx into the labour market caused by public sector spending cuts.

    Business owners are wary of expanding too quickly during this tentative recovery, particularly as securing finance is still a challenge. Forecast growth would have to be exceptionally high among privately-held businesses to absorb these public sector cuts – which equate to thousands of jobs –and that simply isn’t the case.

    Simon Glyn, partner, FRP Advisory LLP

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