Hold off on rate rise until we get the engine going
As I noted in a recent Birmingham Post blog, JLR’s remarkable growth stalled in the last quarter as sales in China slipped and China became more like a ‘normal’ car market.
JLR’s revenue fell 6.6 per cent to £5 billion but it was the firm’s pre-tax profit and earnings before interest, tax, depreciation and amortisation (EBITDA) which took the biggest hit, with profit down over 30 per cent to £638 million and EBITDA down 24 per cent to £821 million. But, as China and Russia slow, the ongoing pick-up in the European market should help the volume producers in the UK – comprising Nissan, Toyota, Vauxhall and Honda (the latter has had a torrid time in Europe in recent years having misjudged the European market).
That may mean something of more balanced growth in the UK car industry.
Growth over the last few years has been driven mainly by JLR and Nissan. Expect the other volume producers to play a bigger role over the next few years.
That means output growth is still likely going forward over the next few years unless the strength of sterling damages the competitiveness of the industry too
Manufacturing is virtually stagnant and acts as a drag on UK economic growth
much. The strength of the pound is already holding back UK exports in other areas of manufacturing, with factory output barely above recession levels. As a result, overall manufacturing is virtually stagnant and acts as a drag on UK economic growth (so much for the ’march of the makers’).
Recent CIPS/Markit data showed export order books shrinking for the fourth month in succession, with the rising value of sterling making UK goods more expensive in the eurozone (which accounts for almost half the British manufactured goods sold overseas).
This is one reason why I’d prefer to see interest rate rises to come later rather than sooner and to be modest in scale. Professor David Bailey, Aston
Business School