Boom in the gloom for capital goods

Amidst stagnation, there's one ray of hope

Up on the month and still down on the year. Today’s UK production figures (from the ONS) can be taken either way. Stagnation after a brief and half-hearted recovery really does seem to be the conclusion as manufacturing output has seen three month on month rises in the last six months, and three falls. Total production output has been weaker than manufacturing (two-thirds of the total) for months due to the dismal performance from the North Sea but the annual decline in May is, at least, the least negative since September last year.

UK Index of Production from Timetric

The striking trend in the last couple of years has been the rise in the output of capital goods. The reason for this strength is not entirely clear other than to make the relative comparison, namely to point to the well-known weaknesses in consumer demand and mining (mainly North Sea oil) output. Until one of those two sectors picks up, there is little chance of a real recovery.

UK Index of Production from Timetric

Manufatcuring output is divided into a number of components. The chart below shows the strongest and weakest of the 13 sub-sectors in the recovery phase, post-2008. Output of transport, electrical and other equipment has grown strongly while wood, computing and basic pharmaceuticals have experienced no recovery at all.

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An oil rig. Energy is one of the flagging sectors. Photograph: Getty Images

Simon is the vice president (product) at Timetric

Getty Images.
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Why Theresa May won't exclude students from the net migration target

The Prime Minister believes the public would view the move as "a fix". 

In a letter to David Cameron shortly after the last general election, Philip Hammond demanded that students be excluded from the net migration target. The then foreign secretary, who was backed by George Osborne and Sajid Javid, wrote: "From a foreign policy point of view, Britain's role as a world class destination for international students is a highly significant element of our soft power offer. It's an issue that's consistently raised with me by our foreign counterparts." Universities and businesses have long argued that it is economically harmful to limit student numbers. But David Cameron, supported by Theresa May, refused to relent. 

Appearing before the Treasury select committee yesterday, Hammond reignited the issue. "As we approach the challenge of getting net migration figures down, it is in my view essential that we look at how we do this in a way that protects the vital interests of our economy," he said. He added that "It's not whether politicians think one thing or another, it's what the public believe and I think it would be useful to explore that quesrtion." A YouGov poll published earlier this year found that 57 per cent of the public support excluding students from the "tens of thousands" target.

Amber Rudd, the Home Secretary, has also pressured May to do so. But the Prime Minister not only rejected the proposal - she demanded a stricter regime. Rudd later announced in her conference speech that there would be "tougher rules for students on lower quality courses". 

The economic case for reform is that students aid growth. The political case is that it would make the net migration target (which has been missed for six years) easier to meet (long-term immigration for study was 164,000 in the most recent period). But in May's view, excluding students from the target would be regarded by the public as a "fix" and would harm the drive to reduce numbers. If an exemption is made for one group, others will inevitably demand similar treatment. 

Universities complain that their lobbying power has been reduced by the decision to transfer ministerial responsibility from the business department to education. Bill Rammell, the former higher education minister and the vice-chancellor of Bedfordshire, said in July: “We shouldn’t assume that Theresa May as prime minister will have the same restrictive view on overseas students that Theresa May the home secretary had”. Some Tory MPs hoped that the net migration target would be abolished altogether in a "Nixon goes to China" moment.

But rather than retreating, May has doubled-down. The Prime Minister regards permanently reduced migration as essential to her vision of a more ordered society. She believes the economic benefits of high immigration are both too negligible and too narrow. 

Her ambition is a forbidding one. Net migration has not been in the "tens of thousands" since 1997: when the EU had just 15 member states and the term "BRICS" had not even been coined. But as prime minister, May is determined to achieve what she could not as home secretary. 

George Eaton is political editor of the New Statesman.