'Dual economy' plea for aid to industry

THE GOVERNMENT came under fresh pressure yesterday to aid the manufacturing sector after the publication of a new report showing the extent to which Britain has turned into a dual economy.

The study, from the Foundation for Manufacturing and Industry, argues that had manufacturing grown at the same rate as the rest of the economy since 1990, then employment would have risen, not fallen, while overall economic growth would have been a third higher.

Jane Croot, the FMI's economist and author of the study, says that manufacturing is punching far beyond its weight in terms of its impact on jobs, output and living standards. She estimates that every 1 per cent increase in manufacturing output increases overall output by half a per cent even though manufacturing only accounts for a fifth of economic activity.

Had manufacturing grown at the same rate as the rest of the economy then growth between 1990 and 1997 would have been 17.4 per cent, not the 13.2 per cent actually achieved, while the unemployment rate would now stand at 3.2 per cent rather than 5.6 per cent.

"The figures highlight the development of a dual economy in the UK with manufacturing on the brink of recession and a booming service sector which has been fuelled by strong demand," says the report.

Ms Croot said this meant that the Government should not just rely on the control of interest rates by the Bank of England to manage the economy as a whole but must make more use of fiscal policy.