Enfeebled manufacturing shows signs of export-led growth

After suffering its worst slump since before the Second World War, British manufacturing industry appears to be staging a broadly based recovery, according to the latest survey of industrial activity from the CBI.

The employers' body said that manufacturing output rose last quarter for the first time in two years, strengthening already high hopes that official figures to be released next Tuesday will in effect declare the recession "over", if only in technical terms. The sharp decline in the overseas value of sterling over the past couple of years – down by about a fifth since its 2007 highs – seems at last to be generating some export-led growth.

Despite bad news on jobs in recent days from Chevron's oil refining operations and Bosch's car parts business, both in South Wales, the CBI reports improvements across the board in the sector, with confidence levels, order books, exports and stock levels all showing encouraging trends. Of the 461 manufacturing firms surveyed, 31 per cent said output rose during the three-month period, while 20 per cent said it fell. The resulting balance of +11 per cent is the strongest figure since January 2007.

Ian McCafferty, the CBI's chief economic adviser, said: "Exports are rising for the first time in two years, as UK-made goods are looking more attractive in overseas markets. Manufacturers are also feeling upbeat about export prospects for the year ahead." However, he cautioned that recovery would be "slow and protracted".

Even if manufacturing has started to recover the ground lost since the credit crunch first bit in 2007, it may be many years before output recovers to "normal" levels, and it seems destined never to return to the scale it enjoyed even a few decades ago. Britain's manufacturing activity stands at its slowest since 1992.

Manufacturing, while small in relation to the rest of the economy, makes a disproportionately large contribution to the balance of payments. One concern is whether the sector may now be so emaciated that it might not be able to pull the UK out of recession as it did in the past, notably after the ERM debacle and devaluation of 1992.

Meanwhile, the Chartered Institute of Personnel and Development and the British Chambers of Commerce have called for a freeze in the national minimum wage "to avoid counter- acting the impact of the government's own welcome measures to combat rising youth unemployment" and a "jobs-light recovery".