Interest rates risk return to recession

The chancellor’s reliance on interest rates to manage the economy will not only worsen the plight of Britain’s manufacturing exporters but could push the UK economy back into recession. According to a report by research organisation, the Foundation for Manufacturing and Industry (FMI), the UK is now a ‘dual economy’ where manufacturing is on the […]

The chancellor’s reliance on interest rates to manage the economy will not only worsen the plight of Britain’s manufacturing exporters but could push the UK economy back into recession.

According to a report by research organisation, the Foundation for Manufacturing and Industry (FMI), the UK is now a ‘dual economy’ where manufacturing is on the brink of recession, while the service sector is booming.

If this continues, it will significantly reduce GDP growth, warns the report. The economy has already suffered as a result of the slowdown in manufacturing.

Although manufacturing accounts for 21% of GDP, a rise in manufacturing output of 1% leads to a 0.44% increase in GDP. In the 1990 97 period, had manufacturing grown as quickly as the rest of the economy, total GDP growth would have been 17.4% instead of 13.2%, and unemployment would be 3.2% not 5.6%.

Report author Jane Croot calls for fiscal measures to address the gap in growth between the manufacturing and service sectors.