Analysis: Britain's car industry may inspire more balanced economic recovery

Sun Jan 26, 2014 5:12am EST
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By David Milliken

LONDON (Reuters) - A bumper year for Britain's car industry offers some hope the economy will start to grow in a more sustainable way, with a better balance between investment and spending.

In 2013, Britain enjoyed its best year of economic growth since the financial crisis, outpacing other advanced nations. But there was a catch. The recovery was driven by consumers spending more and saving less.

A smooth transition to longer-lasting growth, propelled by business investment and exports, is a key hurdle for 2014 according to the Bank of England.

The car industry is showing signs of leading the way - but there have been false starts before.

Every year since 2010, Britain's budget watchdog has predicted a rebound in annual business investment - but it is still a third lower than before the financial crisis of 2007-2009. It is essential for Britain's recovery.

"The pace of investment - when it comes - will ultimately determine the duration of the current upswing," BoE policymaker Ian McCafferty said in a speech to businesses last week, adding that many firms were operating close to capacity.

A string of surveys show firms are more willing to pump money into their businesses than at any time since the crisis - in the services sector as well as manufacturing.

Rebalancing is often talked about in terms of moving the economy towards manufacturing and away from services. But what the BoE wants is a shift in spending towards investment and away from consumption, rather than between economic sectors.   Continued...

Workers inspect components on the fuel inlet production facility at Futaba Industrial in Foston, central England in this January 21, 2014 file photo. REUTERS/Darren Staples/Files