Monday, June 11, 2018

The industrial production index figures for April 2018 show something of a dip in activity. Over the last couple of years, this series has fluctuated quite sharply, and, this being the case, forecasts of the series are (even) less reliable than usual. This is likely linked to the uncertainties prevalent in the economy following the Brexit vote. Nevertheless, the most recent data suggest less scope for optimism about the production sector than was the case in the latter part of 2017.

Friday, March 09, 2018

The latest industrial production data show, as expected, a marked rise over the previous monthly figure (which had been adversely affected by the temporary Forties pipeline closure). This series has been oscillating quite sharply over the last couple of years, and the recovery in January should not be viewed as heralding a new boom. Rather, the expected future performance of the production industries is expected to be quite muted.

Friday, February 09, 2018

The industrial production index for December 2017 has been released. It shows a marked dip compared with the November figure (a 2.2% fall), and no change on the value a year earlier. This appears to be attributable to extenuating circumstances, with the closure for much of the month of the Forties oil pipeline following the discovery of a leak that is now repaired. In the manufacturing sector, growth has remained quite healthy. The blip in oil output in December results in a downturn in the forecast from my neural network model - no correction has been made to the figures to correct for this blip. With this in mind, the prognosis for the production sector over the medium term remains quite strong, with world growth and the relatively low value of sterling continuing to contribute. Nevertheless, much uncertainty remains, particularly surrounding the nature of the future trading arrangements with the EU, and all forecasts should be regarded with considerable caution.

Monday, November 27, 2017

The government has published its long-awaited Industrial Strategy. It is well established that successful innovation often involves collaboration between public and private sectors, and the provision by government of a clear steer, with the promise of tangible support in the ‘Grand Challenge’ areas of AI, mobility, environment and ageing, is to be welcomed. There is some overlap between these areas and the launch of Sector Deals – partnerships between government and industry in the areas of AI, the automotive sector, construction, and life sciences. Future Sector Deals are heralded in the areas of creative, digital, and nuclear industries.

The Strategy places considerable emphasis on ‘people’, and stresses the need ‘to create good jobs and greater earning power for all’. The commitment is that ‘as the economy adapts, we want everyone to access and enjoy good work’. Within government, the Business Secretary is to take on responsibility for the delivering quality jobs. Building on the Taylor Report, he will develop ‘a set of measures against which to assess job quality and success’ – including: ‘overall worker satisfaction; good pay; participation and progression; wellbeing; safety and security; and voice and autonomy’. Some aspects of good work, as defined in the literature, are notable in that they do not appear in this list – notably flexibility and worker co-determination. Sector Deals are proposed as one mechanism whereby job quality can be enhanced; there will need to be others.

While employment in the UK has recovered well from the Great Financial Crash, it is widely recognised that the economy suffers a serious problem of mismatch in the labour market. The Industrial Strategy seeks to address one aspect of this problem – an absolute shortfall of certain skills. In particular, it identifies gaps in skills in science, technology, engineering and mathematics (STEM) and inequalities in educational achievement. The proposals in the Strategy to address these issues build upon innovations introduced in the last two Budgets – specifically in the provision of Technical level qualifications, apprenticeships, investment in mathematics education, and lifelong learning. The Strategy leaves another aspect untouched, however. Overeducation – or, rather, the allocation of well educated workers into jobs where they are less productive than they might otherwise be – has become an increasingly prominent issue. A part of any successful industrial strategy should therefore be to investigate how the operation of the labour market could be improved so that people can most effectively use the skills they already have.

The Strategy aims to tackle regional disparities in skills by devolving responsibility and budgets to mayoral areas. This is welcome, as local conditions are best understood by people working on the ground. More generally, the migration of highly skilled young workers to London is leading to coincident overheating in the capital and stalled recovery elsewhere. Investments made as part of the Industrial Strategy all have a spatial dimension, and active government support for initiatives ought explicitly to be conditional on promoting and maintaining regional balance; the need is for something with considerably more teeth than the regional mission of the British Business Bank heralded by the Strategy document. The Northern Powerhouse and Midlands Engine may be key to this – though it is critical that these initiatives should work together and not mutually frustrate each other. (If everywhere is a powerhouse, nowhere is a powerhouse – and there is a legitimate fear that regional politics may already have kiboshed George Osborne’s great idea.)

The UK has long lagged behind major competitor countries in its R&D spending, with combined public and private spending amounting to 1.7% of GDP. This compares with 2.8% in the US and 2.9% in Germany. The Strategy sets the goal of raising the proportion in the UK to 2.4% by 2027. This medium term goal appears modest, and indeed the Strategy itself sets an aspiration for a longer term target of 3%.

Overall, then, there is much to welcome in the Strategy. Productivity has been an issue in the UK economy for many years, and it is good to see government make explicit its responsibilities as an agent that can set the right environmental conditions for business to innovate. It is however a pity that the positive aspects of the Strategy are at odds with other relevant developments in the policy domain. The word Brexit does not appear in the document at all, and the only serious discussion of its implications for the substance of the Industrial Strategy is in a brief paragraph on the penultimate page. That aside, there is one page (with a lot of white space) that deals with migration – in a notably coy manner. The sad reality is that Brexit will take with one hand what the Industrial Strategy gives with the other.

Friday, November 10, 2017

The latest industrial production data show year-on-year growth of some 2.5%, with industrial output rising 1.4% over the most recent quarter and by 0.7% between August and September. Industrial production is now at its highest level since October 2008.

The upswing in industrial output over the last six months contrasts with the previous nine months, during which the series had been very static. The main driver is manufacturing - and specifically transport equipment and the 'other manaufacturing and repair' category. The benefit of recent investment in motor vehicle production facilities is being realised, though there must be some nervousness surrounding future developments in this sector given the potential imposition of tariffs in the event of a hard Brexit.

The recent upswing in the data result in a markedly revised forecast - though given present uncertainties, any forecast should treated with the utmost caution.

Tuesday, October 10, 2017

The latest data on industrial production show growth in the period to August of this year. This follows a spell of falling output during the first six months of the year; while industrial output has now recovered somewhat, it is still below the levels reached towards the end of last year in the immediate aftermath of the sterling depreciation. The trend in the series is somewhat bumpy, but appears still to indicate muted performance over the coming period.

The main source of uncertainty remains Brexit, and in particular the nature of any agreement that is reached between the UK and EU concerning future trade arrangements. The UK economy is not, however, entering the coming two year period in a particularly buoyant state. From this perspective alone, the goal of a transition period of 'around' two years in the Brexit arrangements seems propitious in that it kicks a rather unpleasant can down the road. Longer term, achieving a trade deal with the EU that is as close as possible to current arrangements seems expedient.

Friday, September 08, 2017

The industrial production data for July provide some encouraging signs. Year on year growth is almost 0.4% - well short of the 2% plus figures observed between November 2016 and February 2017, but positive nonetheless. The recent peak level of industrial output - in December of last year - was achieved following the depreciation of sterling in the wake of the Brexit referendum, and - as we head to the latter part of this year - it appears likely that, with that high as a baseline, year on year growth is likely to decline. Indeed, my neural network forecaster of this series continues to suggest negative growth over much of the coming period. Sterling's depreciation is likely to have a one-shot impact on the growth of exporting industries, and the benefit of that is unlikely to be prolonged far into the future.