UK's exports will revive economy, report claims

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The Independent Online

The UK's economic output will be boosted by rising exports during the next decade, driven by improved competitiveness and soaring demand from the fast-growing "Bric" economies of Brazil, Russia, India and China, an influential forecasting group says today. Following a decade of underperformance, the total value of UK goods and services exported will leap by 8.5 per cent a year, says the Ernst & Young Item Club (Item), compared with a fall of 1.8 per cent between 2008 and 2010. A weak pound will help to drive increased competitiveness for UK exporters temporarily, but Item has urged the Government to invest "significantly" to help domestic companies compete more effectively.

Andrew Goodwin, a senior economic advisor to the Ernst & Young Item Club, said: "Government policy should also be focused on supporting competitiveness through improving skill levels and providing incentives to invest, which would help to close the productivity gap with Germany." But he added this can be delivered only through "structural reform of the education system and improving incentives to firms to invest in research and development".

Item says growth in net exports will add 0.5 per cent a year to GDP growth in the next five years. UK economic output fell by 0.5 per cent in the final three months of 2010, following a hit from the heavy snowfall in December. During the period to 2020, the engine rooms of this export growth will be electrical, optical and hi-tech goods, as well financial services.

The Bric countries will account for a larger slice of the growth in UK exports, with British companies increasing the value of exports and services to these fast-growing countries at an annual rate of 11.7 per cent. At present, Bric countries account for just 5 per cent of UK exports. Mr Goodwin said: "The Government has an important role to play in facilitating the re-orientation of exports towards emerging markets and breaking down the regulatory barriers for companies that wish to break into those countries by developing strong relationships with their governments."

While UK consumers will be squeezed by the Government's austerity measures and will have to battle inflation ahead of wage growth, the average household income in the Bric countries will rise by 14 per cent a year, says Item. Improved living standards and a surge in middle-class consumers in these countries will particularly drive strong demand for the electricals and hi-tech products.

UK exporters are also likely to grow the value of total exports to traditional strongholds, such as Europe and the US, by 7.8 per cent and 8.6 per cent respectively, during the next decade, boosted by the sharp devaluation in the pound over the past three years. The total value of physical UK goods exported to the Bric countries will jump by 11.8 per cent in the next 10 years, compared with 8.7 per cent a year globally.

However, Item also says the service sector, notably financial services, will continue to be the key to UK exports and will deliver growth of 8.4 per cent worldwide in the next decade.

Mr Goodwin says: "A weak pound is giving UK exporters a significant, but temporary, boost to competitiveness. The UK needs to be looking to the lessons learned from Germany, which has consistently achieved greater improvements in competitiveness than the UK, if it is to become a major player in export markets over the longer term."