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Osborne's promise of a 'march of the makers' looking hollow

THE latest Scottish manufactured export figures made pretty grim reading.

It was not just the 2.2% quarter-on-quarter tumble in the volume of these exports in the three months to September, revealed in Wednesday's figures from the Scottish Government, although this was a very disappointing result.

If you compare the year to September with the preceding 12 months, thus stripping out any quarter to quarter volatility, Scottish manufactured exports were down 0.9%.

It is important to emphasise this is not a peculiarly Scottish problem.

The export performance of the UK as a whole has been dismal. It could hardly have contrasted more sharply with the picture painted somewhat triumphantly by Chancellor George Osborne, in his March 2011 Budget, of "a Britain carried aloft by the march of the makers".

With some of the UK's key export markets in the eurozone struggling, it is difficult to imagine Mr Osborne's March 2011 vision materialising any time soon.

Further down the line, it may be interesting to see how the Conservatives' hardball rhetoric on the European Union plays in terms of demand for UK exports from eurozone markets.

Mr Osborne was in triumphant form again on Tuesday, after the International Monetary Fund confirmed it was raising its forecast of UK growth in 2014 from 1.9% to 2.4%.

He proclaimed that the Coalition's plan, which has had austerity and corporation tax cuts as its centrepieces, was "delivering economic security for the hard-working people of this country".

And he talked about how the Westminster Government was avoiding the "quick fixes" and "easy options", a most interesting point of view given the Coalition's seeming haste to put in place measures to fuel the housing market ahead of the 2015 General Election.

Given the degree to which consumer sentiment in this country is driven by residential property values, it is difficult to imagine a quicker fix or an easier option for politicians with an eye on re-election.

And it is consumer spending which has driven the UK economic recovery thus far.

In terms of the upgrading of the IMF forecast, it is also worth bearing in mind the context.

Growth of 2.4% would still be below the UK's historical average annual rate of expansion, which was put at about 2.75% by Bank of England Governor Mark Carney in a speech last year.

And the UK, unlike other major developed economies such as the US and Germany, remains adrift of its peak in output ahead of the Great Recession of 2008/09.

Minutes of the January 8 and 9 meeting of the Bank of England's Monetary Policy Committee, published this week, make plain the unappetising mix of UK economic recovery. They highlight the fact that, although UK gross domestic product grew by 0.8% quarter-on-quarter in the three months to September, exports dropped by 3%.

In contrast to exports, UK consumer spending rose by 0.8% in the third quarter of last year, the most recent period for which official figures are available.

The MPC's take on this is interesting. MPC members noted, at their meeting two weeks ago, that this growth in consumer spending had "been associated with a fall in the saving ratio from almost 8% to just over 5% of household income".

They believed this fall in the saving ratio was likely to have reflected increased optimism about future incomes, higher asset prices, reduced uncertainty and an associated reduction in precautionary saving, increased credit availability, and lower loan and deposit interest rates.

However, highlighting a limit to how long this could go on, the minutes say of MPC members' deliberations on this issue: "While it was difficult to estimate precisely the relative contributions of these various factors, it seemed unlikely that any would drive a similar fall in the saving ratio over the coming year."

Monetary policy-makers concluded that maintaining recent rates of consumption growth would require a sustained pick-up in real income growth. However, they also noted pay growth remained subdued. And they concluded that this weakness in pay growth pointed to continued slack in the labour market.

So does unsustainable spending growth, by hard-pressed households already carrying a high-debt burden, really amount to "delivering economic security for the hard-working people of this country"? Answers on a postcard, if you can afford the stamp.

It has been interesting to note the lengths to which MPC members, including Mr Carney, have been going to emphasise they are in no hurry at all to raise UK base rates from their record low of 0.5%, in spite of a much sharper-than-expected fall in unemployment.

They are well aware of the continuing risks to recovery.

Mr Osborne would do well to focus on this message from the MPC when contemplating the true state of the economy, rather than crowing about the rise in the IMF growth forecast.

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