25 Jul 2013

After a long gestation, Prince George delivers an infant recovery

I am in Rugby’s Automotive Insulations Limited factory that, simply put, supplies the soft furry noise absorbing bits in cars.

I’ll hold my hands up here. I’d never have imagined there was much money to be made in this market. But here amid the machine presses and moulds shaping soft foam parts for Jaguar, Land Rover and Bentley, is the pure story of Britain’s return to growth.

Jim Griffin who runs the company and owns a chunk of it, nearly walked away when the financial crisis savaged car sales. He might have fired a large chunk of the 40 staff. Instead, at the point where no-one was buying cars, he used the then government’s Train 2 Gain scheme to train up his shopfloor staff to NVQ level. He also changed strategy, chasing higher-value 3D designs and developing new materials with better noise absorption.

The cheaper pound helped, as did the relative calm in the eurozone crisis. Now sales have more than doubled, and staff by the end of next year will have increased five-fold. He is exporting, expanding and innovating (Mr Griffin is evangelical about a programme run by Goldman Sachs to mentor SMEs). He should soon graduate from being an SME. There is something almost Germanic in the company’s Mittelstand-style growth and niche cunning.

George Osborne spent the past 24 hours touring the nightshift across this area, from bakers, to road-builders to Tesco. The chancellor has every reason to start to feel rather optimistic, on his own terms. The recovery was broad-based in Q2, with all sectors contributing to a 0.6 per cent Golidlocks number: not too cold, not too hot. On the back of this he has line up pro-growth reforms to monetary policy and banking policy.

Fiscal policy has already been bent (within Plan A’s remarkable flexibility) to boost growth. The next major fiscal event, the autumn statement this winter, will see the OBR upgrade growth projections and downgrade borrowing projections for the first time.

Interviewing the chancellor after these figures, he was, for now, cautious, telling me: “The economy is on the mend but we still have a long way to go. Of course, at the heart of what we’re doing is still making sure the public finances are in order, that there’s not a catastrophic loss of confidence in the British economy as there has been in many European economies.

“We’ve achieved that, but we’re also creating a more competitive economy, more balanced, where businesses like this can grow, can hire people and take people on and you see that in the fact that over a million jobs have been created in the private sector. So we’re absolutely determined, we know we’ve got a way to go but we’re determined to stick to our plan and British people I think have held their nerve.”

I put it to him that the recovery he had presented was a two-speed recovery. He had abandoned rebalancing to boost property ahead of an election. The chart from the ONS below showing the sunlounger-shaped slow recovery still 3 per cent below peak, decomposed into services back at 2008 levels, and construction and production (manufacturing) 8 per cent and 4 per cent below 2008 levels is rather instructive. Conservative advisers would blame (a difficult?) Labour for unsustainable pre crisis growth. Labour would blame austerity for the lost growth.

So why is the chancellor boosting housing and property, or expecting a primarily monetary stimulus to work? Mr Osborne pointed out that housing transactions were still only half their peak level, no sign of a bubble. I also suggested that the recovery had been built on the back of squeezed real pay by ordinary nightshift workers in his filming opportunities.

“I met a lot of people working incredibly hard through the night. Here in this depot in Daventry, in a bakery in the Birmingham area, on the M6 doing road repairs. What struck me about all those people is they’re incredibly hard-working people trying to provide for their family, and everything I’m going to do as chancellor is to help those people. Those are the people I have in mind as we move from rescue to recovery as we try and build an economy that works for everyone.”

Except the hard work really does only start now. Speaking to Mr Griffin, you see there are still challenges, huge challenges, around recruiting skilled engineers, even as youth unemployment remains near records. Finance for tooling is still an issue. Even if these GDP growth levels remain, they will probably not feel much like recovery for large swathes of Britain. And Mr Osborne and Mr Carney still face that tricky dilemma of squaring the recovery rhetoric, with still expecting Bank of England stimulus.

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