Peter Spencer, chief economic adviser to the Ernst & Young ITEM Club, said the findings were not surprising as the UK has lost skills. "There has been an erosion of manufacturing capacity since the 1990s. Once people pull out of products, it's very difficult to persuade them to move back in," he said. "It's a feature of globalisation that people tend to specialise."
The lack of "import substitution" is acting as a drag on the recovery by fuelling inflation and upsetting the trade balance. The weak pound makes foreign products more expensive and the higher costs are being passed through to consumers.
At the same time, higher prices mean fewer imports have a disproportionate impact on trade figures. "There is a problem that our manufacturing industry is not expanding as much as it could in the home market," David Kern, chief economist at the British Chambers of Commerce, said. "There are considerable opportunities in the home market that are not being exploited."
British exports have recovered all the ground lost since the recession. But imports have remained stubbornly high. As a result, trade remains a drain on economic growth, although the situation is improving. The trade deficit ? how exports lag imports ? improved to �2.4bn in February from �3.9bn. Britain is a net exporter of services but importer of goods.
Simon Ward, chief economist at Henderson, said the Bank's reaction to the findings demonstrated that it has been behind the curve on inflation. "I'm puzzled by their puzzlement," he said.
"It was always likely to take time to build new capacity, and there have been credit constraints. The Bank has admitted it underestimated the effect of sterling's depreciation on inflation, this is an aspect of that."
The minutes, which showed an unchanged 6-3 split in favour of holding rates at 0.5pc, also raised concerns about the strength of the consumer. They were interpreted as evidence that the Bank will delay its first rate rise until later this year, not May as many analysts expected.
No comments:
Post a Comment