Government 'blameless' on manufacturing stagnation

24-08-2006

The struggling state of Britain's manufacturing sector has not been caused by actions controllable by the government, a new report has claimed.

Auditing firm Ernst & Young instead attributes the loss of over a million jobs since 1997 to wage inflation, which has seen labour costs rise by 50 per cent in the last decade.

The report argues that a failure by employers to keep wage costs at feasible levels is responsible for the sector's present malaise, although it acknowledges that high interest and exchange rates caused by Labour's prosperous economy have had an effect.

"Manufacturers have failed to compete with the service sector," Peter Spencer of Ernst & Young commented.

"It is admittedly difficult for manufacturers to compete with the financial services sector for skilled labour, particularly for graduates, but they might have restrained labour cost inflation more effectively by increasing efficiency."

While the manufacturing sector has been struggling the services sector is booming in the UK, the report claims, highlighting an average 3.4 per cent annual growth since Labour came to power.

But the uneven nature of the UK's economic sectors does not matter, Mr Spencer argues.

"The relative decline that we are seeing in manufacturing is not endangering the UK's ability to pay its way in the world," he said.

"As countries like China and India develop more sophisticated economies their demand will expand for tradable services, creating opportunities for all UK businesses."


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