Manufacturing must drive the economy out of the recession, a leading economist has warned.
Speaking to West Midlands Business Council, at an event organised by Forrest Research and Birmingham Business School, The Guardian’s economics editor Larry Elliott said Britain’s industry had been given a painful reality check.
Mr Elliot said “The lesson we have to learn is we can’t run the economy on ‘bubble-think’. I warned on the dangers to the United Kingdom economy of bubbles in the early part of this decade. Now, with the housing market stalled and financial markets retrenching, we are only left with public spending but that will come to an end as governments bring down the national deficit.
“Britain has been in a bubble-world for over 40 years – having relied on North Sea oil and later on financial services, decision-makers did not care about manufacturing. The final bubble was consumer debt.”
Mr Elliott, added: “There are no more bubbles out there for this economy. We can’t rely on the housing market – that would be a fool’s paradise.
“We have reached the point of a reality check. The future is not ever more speculation in the City of London or borrowing for things we don’t want – but it is grafting away to make things to earn our way. I hope we learn that lesson soon.”
Giving his short-term prognosis for the United Kingdom economy, he went on: “The likeliest shape of the recovery will be a W pattern. We have seen a very deep plunge over the last nine months. We will see recovery over three to six months which will be built around stronger growth in Asia.
“We will probably see another leg to this as the headwind to the recession is so severe, with a lack of effective demand being the real issue.
“The oil price is starting to rise again, eating into real incomes, so the chances of jumping back to recovery from the trampoline is pretty slim,” Mr Elliot added.
James Watkins, the West Midlands Business Council’s executive director, told the same event that the Government had to act quickly to regenerate the markets:
“Ministers must take early action to get the export credit insurance market back up and running,” he said. “If this market is not underwritten in some way, then potential exporters will be deterred. That would hit the export-led recovery this economy sorely needs.”