Crisis for manufacturing Labour must form economic strategy

THE latest manufacturing figures make grim reading. Output declined sharply in the fourth quarter of last year and the sector is now technically in recession. Who would have thought that under a Labour Government manufacturing would have fared so badly? In 18 years of Opposition Labour complained repeatedly about the state of manufacturing, but since coming to power it has done nothing to arrest the decline of the sector. The December reading is just a touch over a quarter of 1% above the level of output in 1995, and three out of the seven manufacturing sectors have declined. Output is expected to fall further during the first half of this year as firms seek to run down their stocks.

In December the decline in manufacturing was compounded by sharp falls in energy and utilities output. As a result, fourth-quarter gross domestic product may well have to be revised down from 0.2% to 0.1%, just a decimal point away from stagnation. The figures justify the aggressive approach of the Bank of England to monetary policy. Interest rates have now been reduced by 2% to 5.5% in five months. An unnecessary recession still seems an outside possibility, though the resilience of service industries may save the day for the economy. Manufacturing has long been the poor relation of the British economy, never more so than now. The Chancellor of the Exchequer, Gordon Brown, has done little or nothing to regulate domestic demand, putting the onus on the Bank to manipulate monetary policy to comply with the Government's inflation target.