British manufacturing is in astonishingly good health, at least compared to world peers. S&P Global’s index of conditions for this country is currently the highest in the G7.
It is higher than Japan and the US, despite Joe Biden’s trillions and the money tree of the Inflation Reduction Act. It is higher than China. Mirabile dictu.
S&P Global said the UK delivered another “solid expansion” in September, with rising output and new orders. The contrast with Europe is breathtaking.
The eurozone’s manufacturing index fell to a nine-month low of 45.0, close to the nadir of the austerity crisis more than a decade ago. It was even worse for Germany.
“With orders drying up at an alarming rate, it is hard to picture any kind of recovery happening soon. What is particularly troubling, looking back over the last 30 years, is how long this slump in export orders has dragged on – it is unprecedented,” said the survey.
This divergence between Europe and the UK has been building for more than a year. It is not the mirage of a weak pound. The sterling trade-weighted index is the highest since the referendum.
Henry Anson, publisher of The Manufacturer, says British resilience is an unexpected consequence of Brexit, which shook everybody out of complacency and forced companies to restructure supply chains before the world went haywire in 2020.
“UK manufacturers have not only survived but thrived by embracing new technologies,” he said. “While the rest of Europe largely maintained established supplier relationships, UK manufacturers took proactive steps to diversify and localise their supply chains.”
Mr Anson said state policy and tax incentives for R&D have steered effort into new fields. “This forward-thinking investment is paying off, as UK manufacturers are increasingly leveraging automation, AI, and digital tools to boost efficiency and productivity,” he said.
His analysis suggests that British companies are much further along in adjusting to the trade shock of Brexit than widely supposed. We saw signs of that last year when the UK car industry secured £24bn of committed investments, a huge rebound from the seven-year drought before.
Meanwhile, the Draghi report has issued its lapidary verdict on Europe, concluding that the bloc is “stuck in a static industrial structure with few new companies rising up to disrupt existing industries or develop new growth engines”.
“With the world on the cusp of an artificial intelligence (AI) revolution, Europe cannot afford to remain in ‘middle technologies and industries’ of the previous century”, it said.
Mario Draghi, the former Italian prime minister and the report’s author, said Europe’s productivity growth began to diverge from the US in the mid-1990s because of its “failure to capitalise on the first digital revolution”.
It risks repeating the error with its heavy-handed regulation of artificial intelligence. Europe has already lost cloud computing irreversibly to America’s hyperscalers.
Mr Draghi describes a Brussels system captured by incumbents, with fatal results for its car industry. Chinese electric vehicle makers are “one generation ahead of Europeans in terms of technology in virtually all domains”. In short, he described a failing economic experiment.
You would not have known this from Sir Keir Starmer’s visit to Brussels last week. The tone was friendly – sort of – but the same old warnings of “cherry picking” abounded.
Europe’s elites still seem to assume that the UK is a demoralised applicant, and still behave as if Brussels is the imperial capital conferring favours in return for obeisance.
The Commission will continue to mark the UK’s card, trickling out market access only to the degree that Britons accept the EU’s legal and policy regime, under “dynamic alignment” and the European Court.
Sir Keir’s refusal to give up his three red lines – single market, customs union, and “free movement” (actually work and welfare rights) – has led to consternation and chagrin.
The idea that the EU might have to make real concessions is not in anybody’s mental universe. “Starmer comes with empty hands,” said German newspaper Handelsblatt.
There may be excellent reasons to rejoin the EU’s close orbit but economics is not one of them. Let us turn the argument on its head. It is becoming ever more imperative to keep a safe economic distance.
It is the rapid and open embrace of technology that turbo-charges productivity and growth, and here the EU is more of a threat than an opportunity. The UK is quietly emerging as a world player in several of the hi-tech fields that will dominate the 2030s.
Google DeepMind came out of University College London and is still based in the UK. This country has the world’s third biggest AI sector, which it is nurturing with a common law approach to risk that is radically different from the precautionary principle behind EU tech rules.
There is some truth to the old adage that common law lets you do anything unless prohibited, while Roman law lets you do nothing unless permitted.
KPMG says investment in the UK’s fintech sector rocketed to $7.3bn (£5.6bn) in the first half of this year, more than the rest of Europe combined.
London is a global player in payments and credit technology, home to Wise, Revolut, Monzo, and Starling. It is a blockchain and cryptocurrency hub. This is loosely a bet by world investors that Britain will not go the way of Europe on financial regulation.
The UK has pioneered the world’s best regime for regulating commercial nuclear fusion and is going gangbusters at the Culham cluster while Europe is still arguing about the rules, which makes it nigh impossible for companies to raise serious capital.
The same is happening with “cell-ag” – precision fermentation, and lab-grown proteins – likely to be a vast and beneficial industry for the world by the 2030s, and where the UK sits in the vanguard. Europe is hamstrung by the EU’s outdated Novel Food Regulation, reminiscent of the saga over GMO crops.
A blocking alliance of EU states says “artificial cell-based meat production does not constitute a sustainable alternative to primary farm-based production” (less sustainable than Big Ag? Really?) and poses a “threat to genuine food production methods”.
Thus speaks the vested interest of French, Spanish, Polish, and Romanian agro-industry, to the despair of the Dutch who first pioneered lab-grown meat.
There is a pervasive lack of awareness in the British debate that moving back into the EU’s legal orbit entails large and rising costs, a sort of reverse-Brexit. The UK would have to abrogate trade deals that it has signed or aims to sign soon.
It would have to leave the Asia-Latin America pact (CPTPP), already a larger market than the EU, and growing larger as Indonesia and others apply to join. Note that Labour calls the CPTPP a “real win” for British exporters. It is not retreating from Global Britain. It is angling for a US trade deal.
Britain’s ardent pro-Europeans are furious with Sir Keir Starmer for a good reason. They are discovering that he is no longer one of them.
Europe has increasingly little to offer Starmer’s economy
Bureaucrats in Brussels are furious with the PM as they discover he is no longer ‘one of them’